The Clean Development Mechanism will change its character in the years to come. From being a mechanism which mainly finances the development of renewable energy projects in China, India, Brazil and other countries with advanced economic development, the post-2012 CDM will most likely comprise other types of projects being located in least developed countries, the so called LDCs. In addition we will expect the post 2012 CDM projects to be smaller in terms of emission reductions per project.
Smaller projects in least developed countries:
Let me first explain what types of projects that I am thinking of. It is waste management projects which reduce methane emissions; it is projects providing poor households with clean energy (solar, biogas, etc) and clean water (water purification instead of having to cook water prior to use). These projects currently face transactions costs which make it difficult for them to compete with other type of CDM projects. The monitoring of a renewable energy project resulting in yearly emission reductions of 100 000 tonnes CO2 is straightforward and requires only monitoring the amount of the electricity generated. This is in contrast to a small waste management project with annual emission reductions of 10-20 000 tonne CO2 equivalents where the operator will have to measure the biogas flows, the methane content in biogas and the efficiency of the flare destroying the methane. As these were not enough obstacles, the project will also have to demonstrate that it can not utilise the biogas to generate electricity which could make the project financially attractive.
The obvious way to reduce the transaction costs for such projects is to simplify the requirements for monitoring and to standardize the approach for determining the projects emission reductions.
The obvious way to reduce the transaction costs for such projects is to simplify the requirements for monitoring and to standardize the approach for determining the projects emission reductions. It should be possible to determine a project’s emission reductions by applying standard default emission factors without having to monitor the project’s emission reductions in the most accurate way. Choosing defaults in a conservative way could compensate for less accuracy and thus compensates for the possibility that reduced accuracy could result in credits being issued for emission reductions which are not real. Moreover, there is a need for positive lists of technologies which are considered additional in specified countries and thus do not require demonstration of additionality for each individual project. For household projects, the concept of suppressed demand needs to be introduced to allow such projects to not only to claim the reduction in historic CO2 emissions, but also the CO2 emissions these households would have in case they would have improved living conditions.
Standardization, positive lists and the introduction of the concept of suppressed demand has obviously also some drawbacks. Standardization and the suppressed demand concept could in some cases result in a project’s emission reductions being overestimated. Positive lists could potentially lead to accepting projects as CDM projects even though these projects would have been implemented anyway and which would have been rejected in case a project specific assessment was carried out.
However, in my opinion, these drawbacks are acceptable for the sake of having created a framework for more effectively introducing low carbon technologies through utilising the CDM projects in least developed countries by reduced transaction costs and thus provides an incentive for many more projects to be implemented than today’s framework.