Possible Development of CDM in the Post-2012 Regime

DUAN MaoshengTsinghua University

Beijing, Nov. 19, 2007

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Outlines

1. Why CDM/flexible mechanisms

2. Proposals on future development of CDM

3. Main considerations under these proposals

4. Possible way forward

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Why CDM/flexible mechanisms

To achieve emission reduction targets at lower economic cost

Environmental effects and integrity, not economic or any other concern, should always be the first consideration

Flexible mechanisms, in whatever forms, should always follow this principle

Flexible mechanisms may be used only when necessary and really help to solve the problem

Principles established by the convention should not be compromised

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Proposals on future development of CDM

Sectoral crediting mechanism (sectoral CDM) Benchmark: crediting projects with emissions below

the benchmark without further additionality test No-lose target: no penalty in case of higher emissions

and trade in case of lower emissions Cap-and-trade

Policy CDM: crediting emission reduction policy and measures

Technology CDM: crediting selected technologies without additionality test; technology transfer and CERs transfer

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Sectoral CDM Benchmark

Similar to current CDM rules, while no additionality test Crediting activities and no linkage with cap for the whole

sector Setting of the benchmark is crucial while difficult Suitable for sectors with homogeneous products

No-lose target Arbitrary targets and not necessarily reflection of efforts Difficulties in aspects of data collection, quantification of

individual efforts and incentives, etc. Cap-and-trade

A type of targets and no linkage with CDM

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Policy CDM and Technology CDM Policy CDM

Additionality test of policies and measures Quantification of emission reduction considerations Consistence with the process of policy and measure

formulation Technology CDM

Promotion of technology transfer and emission reduction efforts

Risk reductions for both sides of CER transactions Additionality assurance through identification of real

qualified technologies and setting of baselines Promotion of additional emission reduction efforts through

underlying certainty

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Main considerations under these proposals Transaction cost Distribution issue Mobilization of investment for emission reduction

efforts Catalyzing technologies Competence concern Further reduction of compliance cost Broader and deep involvement

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Possible way forward

Sectoral approaches could be a useful attempt for broader involvement when very carefully designed

Sectoral approaches themselves do not necessarily assure the participation of developing countries as some major concerns of developing countries are not addressed automatically

Pledge and review may further limit the participation possibility of developing countries

Technical difficulty, such as data availability, verification possibility and related capacity, could be further major barriers

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Possible way forward

Major emitting sectors should be chosen Sectors with homogeneous products should be the first

choice Public and timely availability and verification possibility of

data as well as cost should be considered Electric power sector, iron and steel sector, cement

sector, etc. could be possible choices Different approaches maybe suitable for different sectors

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Possible way forward

Developing countries have been making mitigation efforts very actively through CDM

Underlying economic incentives could be an impetus for small developing countries, but not for large countries

No political risks as well as additional financial and technical assistance could be an option for enhancing developing country’s mitigation efforts

The demonstration of leadership and feasibility by developed countries should be helpful for developing countries’ further involvement

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Thanks

duanmsh@mail.tsinghua.edu.cn +86 10 6277 2596