The Clean Development Mechanism

STREETLIFE - Nigel Paul Oaminal - The Freeman

This is going to be a bit too technical, so we are trying to simplify this as much as we can. Knowing the basics of the Clean Development Mechanism (CDM) is important for us to understand why there are projects being done in our midst that are supposedly "given" in a form of a grant or partly a grant from other countries or even some big corporations in other countries. It will also help us understand the concept of "carbon credits" and why these are "traded" in the international scene, as if these are forms of commodities, instead of talking directly about doing projects which will reduce carbon emissions.

In the last write-up, we introduced the first "treaty" where the countries of the world "agreed" on carbon (dioxide) reduction. The UNFCCC segregated the countries into Annex 1 countries and non-Annex 1 countries; the former are the developed ones which set specific targets for their carbon reduction (from 2008-2012) and the latter, for the rest, developing countries that need to grow more, economically, and who are committed to reduce emissions but without set targets that need to be attained. In 2012, the targets were expanded and extended to the 2013-2020 period. Canada withdrew and up to now, the US has not ratified.

The reason why developing countries are not setting targets (though they are committed to reduce emissions) is that the reduction of carbon emissions has a high cost and may affect their own respective gross domestic product growth rate targets. This is where we have to realize there is an economic cost to environmental sustainability. In the first place, our present predicament of global warming and climate change was caused primarily by the industrial activity in the last 150 years, which produced the world's wealth. As world economic output flourished, we burned a lot of fuel and produced a lot of carbon.

The reason why the US has not ratified yet and a lot of other "developed" countries were also worried about these targets, was because these cost a lot and will require a chunk of their GDP output to accomplish. The other reality, actually, is that it costs more to reduce carbon emissions in developed countries than what it costs in the developing ones, by the same amount. That's why they introduced "flexibility" in the Kyoto Protocol. Since we have the same atmosphere, it would not really matter where (what location) we do projects that will reduce carbon emissions. Climate change is global.

So, instead of doing something that can reduce emissions in their own country, a developed country, or any entity thereof, may opt to do a project in another country (developing) where the cost of doing such is much less. The protocol dictates that the project should contribute to the sustainable economic development, and shall have the consent of the host (developing) country. The country/state/firm can then take the credit for the reduction and count it in the fulfillment of their reduction targets.

For example (and this is very common here), a European company offers to a local government unit in the Philippines to do a landfill or waste-to-energy facility or some kind of sustainable transport project. Usually, like in the case of a waste-to-energy plant, they will offer to finance and build and ask the LGU to provide the land for free. Everything is at no cost to the LGU and oftentimes, there are even offers of "shares" of profit. Sounds very inviting, but what's in it for the "donor?" - the carbon credits. These are in the form of Certified Emission Reductions Certificates (or CERs), which are issued by the CDM Executive Board. And these are counted in the donor's emission targets. If the donor is a firm or corporation, it can even "trade" these CERs as if it's a stock certificate or a gold bar!

There has been a lot of criticisms against the CDM, mostly not in its essence, but on how it's done or on its being transformed into a "business" environment. But for the most part, it serves the purpose and it continues to be accepted worldwide. In the local front, we just have to be careful and vigilant. Most LGUs simply grab the seemingly easy projects without scrutinizing the merits and the financial basis. More often than not, they let go of the carbon credits, which should have been shared with them. That's why thorough financial and economic analyses should be done on these projects before these are approved and the contract signed, so that parties to the agreement are equally benefited.

The only other difficulty in the CDM is how to measure the extent of the emission reduction. That's why before any project is approved, the methodology for carbon reduction computation has to be approved. It's a complicated matter since the reduction should be global and measurable, and should cover the entire life cycle of the project, both in its construction and operations. Now that's another difficult matter - Life Cycle Analysis. (to be continued)











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