"The Clean Development Mechanism: Building International Public-Private Partnerships under the Kyoto Protocol - Technical, Financial and Institutional Issues", a new study published by UNCTAD, examines issues and options in relation to project approval, implementation and recognition of Certified Emissions Reductions (CERs).
The Clean Development Mechanism (CDM) is, along with Joint Implementation (JI) and international emissions trading, one of three projects and market-based instruments identified in the Kyoto Protocol to help countries achieve sustainable development and meet their quantified emission limitation and reduction commitments.
The CDM comprises a set of entities serving under and reporting to the Conference of Parties acting as the Meeting of the Parties to the Kyoto Protocol, who channel private sector investment towards climate-friendly projects. The CDM allows developed countries to acquire certified emissions reductions (CERs) by undertaking greenhouse gas (GHG) mitigating projects in developing countries. Once operational, the CDM will cooperate with JI and international emissions trading, which also generate tradeable commodities called Emission Reduction Units (ERUs) and Assigned Amount Units (AAUs), respectively(1).
UNCTAD´s report discusses effective options by which investments by parties to the Protocol and private entities can be channeled into qualified projects and how CERs would be distributed. It explains the functioning of CDM, including the sharing of credits, revenues and risks between project investors and hosts, liability issues, fungibility of GHG emissions trading commodities, and the generation of revenues to provide adaptation funds and cover CDM administrative expenses.
The report underlines how crucial the private sector´s involvement is to attract investments into projects qualifying for emissions credits and allowances under Kyoto´s flexibility mechanisms. Of particular concern to the private sector are: the identification and approval of property rights over CERs; the transparency, certainty and costs of meeting UNFCCC/Kyoto Protocol rules for project approval; and taxes on CDM credit flows and allocation of proceeds to an ´adaptation fund´.
Private sector investment and financing instruments potentially available for CDM projects are assessed in the report, which also analyses how the CDM could be structured to tap these instruments in order to promote sustainable development and reduce GHG emissions. The potential of the CDM market size alone is estimated in the range of USD 5 to 10 billion of investments per annum. UNCTAD is undertaking specific research on the estimates for this market. CDM investments could be substantial if used effectively and with an integrated approach to the other Protocol mechanisms.
The report was prepared at the request of the Government of Brazil by the Ad Hoc Working Group on the Clean Development Mechanism (CDM) on behalf of UNCTAD, UNDP, UNEP and UNIDO, under the UNCTAD´s "Greenhouse Gas Emissions Trading Project", supported by UNEP, US/AID, the governments of Norway, Netherlands and the United Nations Foundation. It will be presented at the meetings of the subsidiary bodies of the United Nations Framework Convention on Climate Change (UNFCCC) being held in Lyon, France, from 4 to 15 September 2000.
