A key determinant of the value of the CDM will be the degree to which Annex I countries are able to comply with their Kyoto targets through domestic measures and through intra-Annex 1 ebym, isitsbioencsomtreasdiinngc.reTahsisingislyaan unknown, though as time goes pparent that many Annex 1 countries will not be able to comply without some form of emissions trading. The non-participation of the US and the potential for Russia, the Ukraine, and other eastem European countries to supply surplus permits will ali tend to drive down prices. Few expect prices in the first commitment period to be high. lf this is the case, experience to date suggests that the CDM may contribute little to the development of smaller DE projects. One possible solution to this may he the perceived ahilsgoher 'quality' of credits created by smaller DE projects that provide substantial social and sustainable development benefits. Such credits can now, in a pre-compliance market, command a premium over more conventional projects, including larger energy schemes and forestry projects, it i� pc oo ns st iinbul ee, ttoh obueg ha vbayi l anbol e mi ne acnosmcpel i ar tnaci ne, mt haartk teht iss wp hr eemn i tuhme yw i l l emerge in the next few years. THE IMPORTANCE OF POWER SECTOR REFORM WADE believes the CDM is a potentially powerful tool to reduce greenhouse gas emissions. However, effective power sector reform, which can provide a fair and balanced regulatory framework tor DE, is certainly a more appropriate and lower-cost means of stimulating the development of markets for low-emission DE projects in developing countries. WHAT COMPANIES SHOULD DO DE developers and investors in both Annex I and non-Annex 1 countries, who have an interest in pursuing CDM projects can be well advised lo learn more about the procedures outlined in this article. Each national government will have a position in respect of tnhaetioCnDaMl caonndtacJtI and will have information available. A list of points is given at the end of the article, together with - as an example - a link to the UK Government website which carries some particularly helpful guidance. CONCLUSIONS The CDM and other carbon crediting programs offer very substantial opportunities tor DE projeci developers. Any mechanism that provides a financial incentive tor emissions reduction will also incentivize for DE projects, be they high-efficient cogeneration or on-site renewables. There are issues of some concern, however. Transaction costs are relatively high tor smaller DE projects and the fast-tracking proposed by the EB is not clear in its incentives for cogeneration. in addition, of crucial significance will be the mhiagrhkeetnovaugluhe toof sCuDM credits and the degree to which they are pport DE projects. MAKALE/ ARTICLE vTahliusersemwaillinbseaonn utnhkenloowwns, i dbuet, el i mariltyinsgigthneals are that C D M potential incentive tor DE projects. in summary: OBenOefits of the CDM to Annex 1 investors: pportunities in new markets O The cost of emission reduction in non-Annex I countries tmhaeyrebfoerecownisl lidreerdaubcley loovweerar ltl hcaonmin Annex 1 countries a n d pliance costs. Benefits of the CDM to non-Annex 1 countries: O lnward investment and technology transfer O eSmenisssitiizoenss cliomunittariteiosnws hich will in future be subject to O Contribution towards long-term sustainable development. OOlnv A P es o d t l m i o ti r i c n a ris i l s t a k ra s n t : d i veecaonndomleigcarlisckomwithin the country plexity O Potential low value of credits O High projeci transaction costs O Limited statistical data in host country for the calculation of baselines. References 1 . Kyot ConvoenProtocol to !he United Nations Framework on tion on Climate Change, http://unfcc.int/resource/docs/ convkp/kpeng.html 2. Presentation given on Prototype Carbon Fund at: COP 8, Side Event, New Delhi, October 2002, World Bank Carbon Finance & Emerging Strategy 3. Prototype Carbon Fund, Annual Report 2002 4. United National Framework on Convention on Climate Change, CDM Projeci Activity Verification/Certification, http://unfccc.int/ cdm/vercer.html 5. Small Scale CDM Projeci Activities, UNECCC, http://unfccc.int/cdm/Documents/ssc%20docs/sscclarif.pdf 6. 'Free Riders and !he Clean Development Mechanism', World Wide Fund for Nature, Steve Bernow et al, 2002 7. 'CDM lnvestment: Market Actors, Perceptions', J Buen, Poinl 8. Carbon, 2002 www.senter.nf/asp/page.asp?id=i001381 &alias=erupt 9. http : //p ro totypeca rbonfu nd. org/router.cfm?Page=Stakeholders 1 O. http://cdm.unfccc.int/EB/Panels/meth/Call Forl nputs 11. 'Bundling small-scale CDM projects'. iT Power, 2002 Further reading This article has been prepared to give an overview of !he carbon credit market generally and !he CDM in particular. The UNFCCC regularly updates and adds information to its website on the CDM: http:// unfcc.int/cdm. O Prototype Carbon Fund: www.prototypecarbonfund.org Q CEBUPT, ERUPT: www.senter.nf/asp/ page.asp?id=i000000&alias=erupt National contact points for further information: O http://unfccc.int/resource/nfp.html O UK Climate Change Projects Office: www.dti.gov.uk/ccpo/ (!his is given here as an example of a national contact point information O sCeDr vMi c We ) atch: www.cdmwatch.org O Joint lmplementation Quarterly: www.jiqweb.org O WWE Gold Standard: www.panda.org/about_wwf/what_we_do/ climate_change/what_we_do/ business_industry/gold_standard.cfm Source: Cogeneration & On-Site Power Production ENERJi & KOJENERASYON OÜNYASI 67
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