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FACULTY OF LAW

Lund University

Fredrik Hansson



The Clean Development Mechanism and Sustainable Development

Will the purpose be fulfilled?

JUCN21 Environmental Law in an International Context

Essay on the Masters of Laws Programme

Supervisor: Annika Nilsson

Semester: Spring semester 2015



Contents

Abbreviations 4

1 Introduction 5

1.1 Presentation 5

1.2 Purpose 6

1.3 Research question 6

1.4 Delimitations 6

1.5 Method 6

1.6 Material 7

1.7 Structure 7

2 Background 8

2.1 The UNFCCC 8

2.2 The Kyoto Protocol 9

3 Clean Development Mechanism (CDM) 11

3.1 CDM project purposes 11

3.2 CDM project process 12

4 Project developer issues 15

4.1 Choice of project host country 15

4.2 Choice of project size and type 16

5 Project host country issues 18

5.1 Assessment of project purpose 18

5.2 Approval of project 19

6 Analysis and conclusions 21

7 Bibliography 23

Summary

Global warming has become one of the most serious environmental concerns today. In order to reduce greenhouse gas emissions the United Nations Framework Convention on Climate Change was signed. The Kyoto Protocol gives the legally binding and more precise individual commitments by the industrial countries to reduce emission of greenhouse gases. In the Kyoto Protocol there are beside the emission limits set, also some features called flexible mechanisms. One of them is the project based Clean Development Mechanism. The idea is that Clean Development Mechanism allows climate friendly emission reduction projects in developing countries to earn Certified Emission Reduction credits. When the reduction is verified these credits can be traded, sold and used in or by the industrialized countries to meet a part of their own emission reduction targets. According to article 12 of the Kyoto Protocol one purpose of the mechanism shall be to assist parties not included in Annex I (developing countries) in achieving sustainable development. This essay concerns possible obstacles for the fulfilment of that purpose.

Several studies concerning the Clean Development Mechanism structure, function and process, and reviews of its benefits and possible contributions to sustainable development, are examined. The primary findings of this examination are then presented from two point of views; the project developer’s and the host countries’. The issues dealt with are choice of project host country, choice of project size and type, assessment of project purpose and approval of project. The conclusions are that the obstacles to the fulfilment of the purpose in the Kyoto Protocol to promote sustainable development in developing countries lies within the economic aspects of the Clean Development Mechanism market, and that the investors strictly uses the system to get the most Certified Emission Reduction credits at the lowest cost. The fact that the assessment of the contribution of a proposed Clean Development Mechanism project, for the fulfilment of the purpose, is very difficult and complex brings more of an uncertainty to the actual outcome than being an obstacle.

Abbreviations

CDM Clean Development Mechanism

CER Certified Emission Reduction

COP Conference of the Parties

DNA Designated National Authority

DOE Designated Operational Entity

EB Executive Board

ET Emissions Trading

GHG Greenhouse Gas

INC Intergovernmental Negotiating Committee

JI Joint Implementation

KP Kyoto Protocol

PDD Project Design Document

UN United Nations

UNCED United Nations Conference on Environment and Development

UNFCCC United Nations Framework Convention on Climate Change



1 Introduction

1.1 Presentation

All nations of the world are trying to enhance their technology, industrialization and energy for economic development. Energy is the main requirement of development, and today almost all nations depend on fossil fuel based power generations to fulfil their power requirement. This power generation contributes to a major portion of the total global greenhouse gas (GHG) emissions. These gases absorb and trap thermal radiations in the atmosphere which causes climate change. The primary consequence is global warming which has become one of the most serious environmental concerns today.

In order to reduce GHG emissions the United Nations Framework Convention on Climate Change (UNFCCC) was signed at the United Nations Conference on Environment and Development (UNCED) in Rio de Janeiro, Brazil, in 1992 and went into force in 1994. There are no binding limits set in the convention itself concerning GHG emissions for individual countries, but it provides a framework for negotiating international protocols that may set binding limits. The Kyoto Protocol (KP) therefore gives the legally binding and more precise individual commitments by the industrial countries to reduce emission of GHG. The protocol was adopted in Kyoto, Japan, in 1997 and it went into force in 2005. In the first commitment period of five years from 2008-2012 the target was set at a 5% reduction of emission compared to the 1990 level. In the KP there are beside the emission limits set, also some features called flexible mechanisms. One of them is the project based Clean Development Mechanism (CDM).

CDM is about projects in countries without own commitments under the KP, such as the developing countries. The idea is that CDM allows climate friendly emission reduction projects in developing countries to earn Certified Emission Reduction (CER) credits. Each CER is equivalent to one tonne of carbon dioxide. When the reduction is verified these CER credits can be traded, sold and used in or by the industrialized countries to meet a part of their own emission reduction targets. According to article 12 of the KP one purpose of the CDM shall be to assist parties not included in Annex I (developing countries) in achieving sustainable development. This essay concerns possible obstacles for the fulfilment of that purpose.



1.2 Purpose

The overall purpose of this essay is to examine the CDM structure, function and process, and based on that try to identify possible obstacles related to the choices made concerning projects and concerning assessment and approval of such projects, that might be a problem for the fulfilment of the purpose in the KP to promote sustainable development in the developing countries. The examination focus on renewable energy projects, and circumstances in general that applies to those projects.



1.3 Research question

The research question of this essay can be formulated as follows:



- What possible obstacles are there to fulfil the purpose of the Kyoto Protocol, to promote sustainable development in developing countries, when it comes to choosing and approving projects, in general and with a focus on renewable energy, under the Clean Development Mechanism?

1.4 Delimitations

Since this essay is about the situation when choosing and approving CDM projects, it deals with possible obstacles to the fulfilment of the purpose in the stage of the CDM process that is before a project is finally registered, and will not deal with the actual implementation and the assessment of the contribution to sustainable development afterwards when the projects are completed. In that stage of the process, most focus in the examination is then given to renewable energy projects or possible obstacles in general that apply under those circumstances. Other types of projects will not be given direct focus.



1.5 Method

The background part of this essay attempts to give an overview of the current legal situation in this field of international environmental law. The relevant legal documents and legal literature is reviewed and the result from this is presented. Then the CDM is more closely investigated into, to establish what the content are of the rules concerning those projects. Also here relevant legal documents and legal literature is examined and the result from this is presented. Several studies concerning the CDM structure, function and process, and reviews of its benefits and possible contributions to sustainable development, are examined. The primary findings of this examination relevant to the area of the research question are then presented from two point of views; the project developer’s and the host countries’. The above mentioned parts of this essay are presented in a descriptive way. In the final part of this essay, the analysis, the material presented in the descriptive parts, especially concerning the two major point of views, is analyzed in order to distinguish an answer to the research question.



1.6 Material

The main legal sources for this essay are the UNFCCC and the KP. Complementary information on these areas is chosen from the legal literature of the course, International Environmental Law by Beyerlin and Marauhn. Information more specifically about the CDM, its process and concerning reviews of the CDM and its projects is gathered from the legal literature and also from several studies performed, as for example the United Nations Climate Change Secretariat’s own evaluation Benefits of the Clean Development Mechanism.



1.7 Structure

Chapter 2 of this essay presents a background, and is divided into subchapter 2.1 about the UNFCCC and 2.2 about the KP. Chapter 3 is concerned with the CDM, and is divided into subchapter 3.1 about the project purposes and 3.2 about the project process. Chapter 4 presents issues that have to be dealt with from a project developer’s point of view, and is divided into subchapter 4.1 about the choice of country for the investment and 4.2 about which type of project to choose. Then chapter 5 presents issues that have to be dealt with from the host country’s point of view, and is divided into subchapter 5.1 about general problems in the assessment of the purpose of a project and 5.2 about the approval of a project. Finally, in chapter 6 there is an analysis and conclusions in relation to the research question.



2 Background

2.1 The UNFCCC

Because of the risks of global climate change the UN took action in 1990 and established a committee called the Intergovernmental Negotiating Committee (INC) who should elaborate a framework convention on the matter. The result was the UNFCCC which was signed at the UNCED in Rio de Janeiro in 1992, and went into force in 1994. The convention now has 194 parties and therefore nearly universal membership.1 The ultimate objective of the convention is to achieve:

[…] stabilization of greenhouse gas concentrations in the atmosphere at a level that would prevent dangerous anthropogenic interference with the climate system. Such a level should be achieved within a time-frame sufficient to allow ecosystems to adapt naturally to climate change, to ensure that food production is not threatened and to enable economic development to proceed in a sustainable manner.2

The UNFCCC has what can be called a double track approach, where the ultimate objective of mitigation is complemented by an objective of adaption to the change, which is reflected in various articles with consideration to the situation in developing countries. The parties shall be guided by some principles such as to:

[…] protect the climate system for the benefit of present and future generations of humankind, on the basis of equity and in accordance with their common but differentiated responsibilities and respective capabilities. Accordingly, the developed country Parties should take the lead in combating climate change and the adverse effects thereof.3

It is also stated in Article 3(2) and (3) that the parties should take precautionary measures in relation to the causes of climate change and its adverse effects, and further to promote sustainable development. In Article 4 of the convention a system of common but differentiated responsibilities are set up between developed and developing countries. This means that the so called Annex I parties, the developed countries and the country parties undergoing process of transition to a market economy, are required to adopt national policies to mitigate climate change with the aim of returning to their 1990 levels of anthropogenic GHG emissions. The non-Annex I parties, the developing countries, on the other hand only have to meet a couple of procedural obligations, such as establishing inventories of such emissions, developing and implementing national, or even regional, programmes containing measures to mitigate climate change.4

As to the institutions surrounding the convention, there is a Conference of the Parties (COP) as a supreme treaty body regulated in the convention. Further there is a secretariat, two subsidiary bodies, and a financial mechanism.5

2.2 The Kyoto Protocol

The first meeting of the COP was in Berlin in 1995. During the meeting it was found that the obligations incurred under the UNFCCC was not enough. They therefore adopted a ministerial declaration known as the Berlin Mandate, where they agreed to take appropriate actions and make a strengthening of the commitments of the Annex I parties through the adoption of a protocol as a binding legal instrument. Two years later at the third COP meeting held in 1997 in Kyoto, Japan, the Berlin Mandate was fulfilled when the KP was signed. Even so, it was not until 2005 that the protocol went into force, and it now has 192 parties.6

The KP sets out quantified emissions reduction targets and a timetable for their achievement. According to Article 3(1) Annex I parties to the convention, listed in Annex B to the protocol, are obliged to reduce their overall emissions of certain defined GHGs by at least 5% below 1990 levels in the commitment period from 2008-2012, although with specific targets varying from country to country. The non-Annex I parties to the convention are still not required to make any emissions reductions because of the view of common but differentiated responsibilities. The Annex I parties can fulfil their commitments either by reducing their own GHG emissions or increasing removals by sinks, or by a combination.7 Concerning this it is stated in the KP that:

The net changes in greenhouse gas emissions by sources and removals by sinks resulting from direct human-induced land-use change and forestry activities, limited to afforestation, reforestation and deforestation since 1990, measured as verifiable changes in carbon stocks in each commitment period, shall be used to meet the commitments under this Article of each Party included in Annex I.8

In order to be able to make estimations concerning the situation with GHG emission levels and calculations on possible reduction targets, it is also stated in the KP that:

Prior to the first session of the Conference of the Parties serving as the meeting of the Parties to this Protocol, each Party included in Annex I shall provide, for consideration by the Subsidiary Body for Scientific and Technological Advice, data to establish its level of carbon stocks in 1990 and to enable an estimate to be made of its changes in carbon stocks in subsequent years.9

A feature of the KPs regulatory system that is possible for the Annex I parties to use in achieving climate change mitigation and in meeting their obligations is the three flexible mechanisms. These mechanisms are Joint Implementation (JI), Clean Development Mechanism (CDM) and the Emissions Trading (ET), and they are regulated in Article 6, 12 and 17 respectively. The basic idea is that it does not matter where the emissions are reduced as long as there is an overall reduction from the atmosphere, and the mechanisms allows reduction to be made where it is most cost effective.10 The CDM will be given a thorough presentation in chapter 3.

Although there has been own subsidiary bodies developed because of the KP, with support of Article 13(4h), it is still working under the institutions of the UNFCCC, as can be seen in Article 13(1) where it is stated that the COP is serving also as the meeting of the parties to the KP, and according to Article 14 and 15 the same applies to functions by the secretariat and the two permanent subsidiary bodies as under the UNFCCC.11

Since the third COP in Kyoto there has been many conferences through the years. The 18th COP was held in 2012 in Doha, Qatar, and the outcome was that a new commitment period was launched under the KP from 2013-2020, and thereby ensured that the protocols important legal and accounting models remained in place. So far only 31 countries have ratified the so called Doha Amendment. There was also an agreement and a timetable set to work towards a universal climate agreement by 2015, which will come into force for all countries in 2020. This is the ambition for the COP in Paris later this year.12

3 Clean Development Mechanism (CDM)

3.1 CDM project purposes

The CDM is defined in Article 12 of the KP, and the purpose of the CDM shall be to:

assist Parties not included in Annex I in achieving sustainable development and in contributing to the ultimate objective of the Convention, and to assist Parties included in Annex I in achieving compliance with their quantified emission limitation and reduction commitments under Article 3.13

The thought is that Annex I parties may invest in project activities that take place in non-Annex I parties, and that these project activities result in earning CER credits. According to Article 12(3b) Annex I parties may use the CER from the CDM to contribute to compliance with part of their own emission limitation and reduction commitments under Article 3 of the protocol. An important condition for a project is according to Article 12(5c) that the emission reduction shall be certified only if it is additional to any that would occur in the absence of the certified project activity.14 It is also agreed by the parties of the protocol that Annex I countries need to perform and continue domestic actions to reduce emission to fulfil their commitments, and that the possibility of using CDM is seen only as supplemental to this work.15 Trading of the emission credit CER is the main part that comes under CDM, and since it is the matter of reduction of GHG emissions, and the primary constituent of that is CO2, the CER is generally expressed in terms of tonnes of CO2. One tonne of CO2 emissions reduction associated with a project corresponds to one CER.16

As can be seen in the citation from Article 12 of the KP above, the purpose of promoting sustainable development is the first to be mentioned. Sustainable development has been defined in the Brundtland Report, Our Common Future, as “development that meets the needs of the present without compromising the ability of future generations to meet their own needs”. Even if the World Commission on Environment and Development came with this report already in 1987, there is still no generally accepted international definition of sustainable development or agreed basis for determining whether a specific action would contribute to sustainable development. This is consequently also the case for proposed CDM projects. However it is widely agreed that sustainable development consists of three dimensions working together. These are economic development, social development and environmental development. To some extent because of the lack of a universally accepted definition of sustainable development, the responsibility for determining whether a proposed CDM project is expected to contribute to national sustainable development or not, is solely decided by the host country of the project.17

Dependency on conventional energy resources, such as coal, natural gas etc., for generating power is not appropriate because of their high emissions, fast depletion of nature and high prices. So the use of conventional energy sources is not expedient for sustainable development. The use of renewable energy sources, such as solar energy, hydropower, biomass, wind power, tidal energy and geothermal energy, is more beneficial due to their low emissions and non-depletion of nature. In relation to CDM projects this means that renewable energy projects are a better option to achieve the purpose of sustainable development.18



3.2 CDM project process

At the seventh COP meeting held in Marrakech, Morocco, in 2001, a panel known as the CDM Executive Board (EB) was formed for the supervision of CDM projects. This panel consists of members of parties of the KP. The EB is delegating authority to execute various activities of promotion, implementation and supervision of CDM projects to some organizations and companies known as Designated Operational Entities (DOE). At the above mentioned COP certain norms and criteria were formed for CDM registration, which were finalized at the eighth COP meeting held in New Delhi, India, in 2002, and all projects which are submitted to be registered must follow these norms and criteria.19

A project developer from the public and/or private sector, an individual or company, may initiate a CDM project by preparing a standardized proposal called a Project Design Document (PDD). This includes detailed project information on technologies to be used, the expected environmental impacts, an estimation of the projected emissions with and without the project, and the approved methodologies to be employed for monitoring and calculating emission reductions from the project. When a PDD is completed by the project developer, the next step is approval by the host country. The PDD is then submitted to the host country’s so called Designated National Authority (DNA), which is usually the Ministry of Environment. The DNA reviews the proposed project and assesses whether it will contribute to the purpose of national sustainable development in the host country, and if the PDD is considered to be approved it issues a Letter of Approval. The completed PDD must then be validated by the above mentioned DOE which conduct an independent and thorough audit of the project proposal. The DOE makes an assessment of the proposed project in relation to all the CDM’s requirements and if it is technically sound, and if it meets the requirements the proposal enters into a 30-day public comment period where for example the local community and non-profit organizations can comment and provide input to the project. The next step is that the DOE submits a validation report certifying that the proposed project is ready for a formal review by the EB. With technical support from experts, the EB assesses both the PDD and the validation report and then have three options; to reject the project, to ask for improvement and re-submittal or to approve the CDM project for registration.20

CDM projects are performed under different classifications. These are large-scale projects, small-scale-projects, forestry projects and programme of activities or programmatic CDM projects.21 The difference between large and small projects was introduced by the EB to get more small projects. Because small CDM projects in general produce a lower volume of CERs in relation to the transaction costs for the project process, and therefore would be less attractive to project developers, it can use a simpler process that do not require the same expensive approval and assessment system as for large projects. When it comes to renewable energy projects, it qualifies as a small-scale CDM project if it has a maximum output capacity of up to 15 megawatts.22

The project developer can choose the best suited time-limit for the CDM project. The crediting period for such an activity can be either 10 years or 7 years, but then with an opportunity for two renewals on 7 years each to the total of 21 years.23 After the project has been operating for one year, another DOE than the one contracted in the first validation is contracted, to assess the amount of emission reductions achieved. The CERs generated from renewable energy projects are calculated by multiplying the projects capacity factor by the emission factor of the regional grid times the hours in a year, and is measured in terms of gases mitigated. After this second phase of DOE verification, a request for certification is issued to the EB, who reviews the information and makes a decision about issuing CERs to the project. This verification process must take place each year in order for CER credits to be issued.24

4 Project developer issues

4.1 Choice of project host country

Many developing countries need a major improvement in both quantity and quality of energy services for the rural regions in order to develop properly. The access to sustainable and affordable energy is necessary for reducing poverty, hunger, health problems and to improve education and help especially women and children in the developing world to a better life.25 CDM projects can increase the economic development and be beneficial for the environment in poor developing countries. A renewable energy project in a rural area can create employment opportunities, provide electricity for lights and refrigeration, give possibilities for water purification and prevent deforestation, if wood is no longer needed as fuel. Even if there is a need, and even if all these benefits are possible, there are some problems for this to be achieved.26

Project developers are not so interested in initiating CDM projects in rural areas of developing countries, simply because they are not well developed. Many financial barriers arise from the establishment of for example renewable energy projects in rural areas. There are challenges associated with such projects like arrangement of energy sources, lack of good infrastructure and problems with transportation. Because of this, establishment of projects in rural areas become very expensive, and consequently they are not appreciated by project developers.27 With renewable energy projects in rural areas of developing countries there are also challenges because of the low emission reduction per installation on a household basis. It is not easy to earn CER credits because of GHG emission reduction if the fossil fuel energy use, and therefore the total national emissions, is already very low. Another fact is that the developing countries have to focus very much on other national problems than climate change, such as poverty alleviation, securing food and energy access, and to promote emission reduction projects is not a prominent political concern of development policy.28

Because of the problems described a majority of the project developers investments in CDM projects has, instead of to the smaller least developed countries with greater need, gone to a few larger developing countries with more improved infrastructure such as Brazil, China and India.29 The international offset market focus on emission reduction opportunities with the lowest cost, and no limits exist for how many CERs that can come from a specific country or geographic region. The target therefore is countries with the greatest emission reduction potential and at the same time most benign investment climate.30



4.2 Choice of project size and type

There is an obvious relation between the more emissions that are reduced, the larger the profits from the project are. The different steps of the process by which a CDM project is registered are many, complex and strictly reviewed, and the process can have transaction costs between $50.000-$500.000. Even if there are rules for a streamlined methodology to reduce these costs, for example concerning small-scale renewable energy projects, this is still the largest problem for their implementation. A small-scale project still has to complete essentially the same process as large-scale projects, and then the process is almost as expensive but the amount of CERs that can be collected is limited. This means that mostly large-scale projects with a high CER volume potential in relation to the transaction costs, at some few places in the developing countries, are chosen instead by project developers.31

When it comes to project type in general, emission reductions from industrial gas mitigation projects dominate the CDM market, in comparison to emission reductions from renewable energy projects. Although these industrial gas mitigation projects reduce GHG emissions and produce a high amount of CERs at a low cost, they deliver limited benefits concerning sustainable development, such as introduction of innovative technologies, benefits in the local communities or reduction of other forms of pollution to improve the environment. The case of project developers choosing industrial gas mitigation is simply an example of the market seizing the lowest hanging fruit first.32

The industrial gas mitigation projects has been criticized because they are not seen as fulfilling the KPs purpose to, beside the positive environmental effects, promote also economic and social sustainable development, and that they are supporting factories that would exist also without the possibilities of CERs credits. An effect of picking the lowest hanging fruit first is that it will eventually be gone, and when there is no more appropriate industries for these type of projects, the price of CERs will go up, and renewable energy projects will be seen as more financially attractive as an investment by the project developers. Even if the possible places for large-scale renewable projects in developing countries are the first to be discovered and developed, there is still an almost unlimited potential for small-scale renewable energy projects. Approximately 1.6 billion people in the world live without electricity, and there is a risk that these people would have this need largely satisfied with fossil fuel sources in the future if options like the CDM did not exist.33



5 Project host country issues

5.1 Assessment of project purpose

Assessing the contribution of the CDM projects in assisting host countries in achieving sustainable development is problematic because of the lack of an international agreed operational definition of the term. Two types of assessment are possible on a project-by-project basis, and that is how a project contributes and how much a project contributes. To determine the first assessment type requires a list of sustainable development indicators against which a project is assessed to find out the nature of contribution. The second assessment type requires not only a list of indicators, but also a quantitative or qualitative measure for each indicator in order to score the project, and weights that makes it possible for the scores for different indicators to be aggregated into an overall measure of the extent of the contribution to sustainable development by a project.34

Scholars and policymakers have studied and attempted to understand how and how much the CDM projects contribute to sustainable development ever since the first project was registered in 2004. The studies are mainly based on information provided by the project developer in the PDD.35 The authors have developed different criteria and evaluation approaches for reviewing the potential benefits of the projects. Most of these approaches are designed to help host country DNAs in assessing whether or not they should approve a proposed project. The studies differ in many ways, such as the sustainable development criteria that has been used, the weighting and the scoring of indicators, the project data resources used and the level of standardization across host countries. Attempts on the second assessment type mentioned have not been widely employed because it requires a large amount of data and also a large part of stakeholder involvement. Some studies have also used additional project data to gather information on sustainable development criteria that is often confidential and not in the PDDs. This can be done by company follow-up surveys. That information can be used to detect potential negative effects on sustainable development, which for understandable reasons are not written into the PDDs. Other studies have used what is called the development dividend framework which has been designed to score projects based on a standardized set of criteria. Limitations of this framework is that the evaluation may not match regional or national priorities, and it only evaluates the presence or absence of a contribution to the sustainable development criteria, and not how much contribution. It is also only positive contributions that are evaluated since the PDDs are the only source of information.36

The result from the studies varies. Some show that industrial gas mitigation projects results in least sustainable development benefits. Others show that there is a trade-off in favor of producing low cost emissions at the expense of achieving sustainable development. Almost all PDDs claim multiple sustainable development benefits, but the mix of them varies by project type. Mostly claimed is stimulation of regional economy through employment creation and poverty alleviation, and then reduction of pollution and promotion of renewable energy and energy access. Social benefits tend to be claimed less often. Environmental and social contributions claimed are often attributed to the CDM project and would not have occurred without it. It is less clear whether claimed economic benefits would have occurred in the absence of the project.37



5.2 Approval of project

Under the CDM projects modalities and procedures each non-annex I party host country has the sole authority to assess and approve whether a proposed project contributes to sustainable development and meets their own national development priorities and goals.38 This means that the perceptions of what sustainable development benefits are vary considerably between countries based on their respective development policies. As has been presented in the previous subchapter there is no single authoritative and internationally accepted approach or methodology applicable for assessment of CDM projects regardless of project type and location. This means that selecting sustainable development criteria and assessing sustainable development contribution can differ from one host country to another. This because of the different perceptions they may have about how to achieve the purpose of the KP. Host countries have a difficult task in establishing and applying the sustainable development criteria in their approval of projects.39

Even if there is various priorities about what is important for a certain developing country in relation to the national sustainable development, and various opinions about how to get there, there are still very few, if any, cases where proposed projects have been rejected by the host country DNA on the basis of that it does not assist in achieving sustainable development. This could be seen as an indication on that national sustainable development criteria are not set to aim very high or that the DNA does not apply the criteria especially strict. Most developing countries do not seem to favor CDM projects with large contributions to sustainable development over other projects that have less contribution. They also have few incitements to apply the sustainable development criteria strict, since they are competing with other developing countries concerning investments from CDM projects. A more strict application could possibly raise the transaction and implementation costs of projects, and then perhaps scare off potential project developers, who instead will choose other host countries.40 This means that the responsibility given to the host country DNAs to make the approval of whether the purpose in the KP is expected to be achieved has resulted in that the concept of sustainable development is being interpreted as economic development. The conceptual interpretation has been influenced by the investors who are from the private and corporate sectors, and who value economic growth more than environmental and social development.41

Because of the transfer of authority in this matter to the national DNAs, there are few procedures to ensure that CDM projects assist in achieving social and environmental development. The CDM review process does only include procedures to ensure that projects do not cause adverse sustainable development harm.42 The emission reductions achieved through the project is monitored each year by the verification process, but the contribution to sustainable development and the fulfilment of that purpose as indicated in the PDD is never monitored, verified or certified during the CDM project cycle.43



6 Analysis and conclusions

According to article 12 of the KP one purpose of the CDM shall be to assist developing countries in achieving sustainable development. There have been some issues presented both from the project developer’s point of view, when making choices about a potential project, and from the project host country’s point of view, when assessing and approving a proposed project. In this part these issues will be analyzed through the following questions: What would be most beneficial for the purpose, what is done and why?

When it comes to the choice of project host country, the most beneficial for the purpose would be to assist the least developed countries in reducing poverty, hunger, health problems and to improve education. Instead a few developing countries with larger economies are mostly chosen. This is done because under the conditions set by the CDM these countries have the greatest emission reduction potential and at the same time most benign investment climate, and the project developers wants to get the most out of the system in theirs view.

When it comes to choice of project size and type, the most beneficial for the purpose would be many small-scale projects spread over many different developing countries with large needs, and especially renewable energy projects. Instead mostly large-scale projects at some few places in the developing countries are chosen, and especially industrial gas mitigation projects. This is done because large-scale projects have high CER volume potential in relation to the transaction costs, and industrial gas mitigation projects produce a high amount of CERs at a low cost. The project developers are seizing the lowest hanging fruit first.

When it comes to assessment of project purpose, the most beneficial for the purpose would be an internationally agreed operational definition of the term sustainable development, and a likewise agreed methodology for its assessment. Instead authors have developed different criteria and evaluation approaches, and studies differ in many ways, and therefore the results from the studies also vary. This is done because it is a very difficult and complex contribution to assess taking into account a vast amount of information and possible consequences.

When it comes to approval of project, the most beneficial for the purpose would be if the proposed projects with the most expected contribution to sustainable development were to be approved. Instead very few, if any, proposed projects are rejected by the host country DNA on the basis that it does not assist in achieving sustainable development. This is done because they are competing with other developing countries concerning investments from CDM projects, and a more strict application could possibly raise the costs and perhaps scare off potential project developers. Sustainable development is being interpreted as economic development.

The conclusions are that the obstacles to the fulfilment of the purpose in the KP to promote sustainable development in developing countries lies within the economic aspects of the CDM market, and that the investors strictly uses the system to get the most CER at the lowest cost. The fact that the assessment of the contribution of a proposed CDM project, in fulfilling the purpose, is very difficult and complex brings more of an uncertainty to the actual outcome than being an obstacle.

7 Bibliography

Statutes

United Nations Framework Convention on Climate Change, FCC/INFORMAL/84/Rev.1 GE.14-20481 (E), United Nations, Rio de Janeiro, 1992.

Kyoto Protocol to the United Nations Framework Convention on Climate Change, United Nations, 1998.

Literature

Beyerlin, U., Marauhn, T., International Environmental Law, Oxford, Hart Publishing Ltd, 2011.

Carrie, L., Lazarus, M., Bioenergy Projects and Sustainable Development: Which Project Types Offer the Greatest Benefits?, Somerville, Stockholm Environment Institute – U.S. Centre, 2011.

Gillenwater, M., Seres, S., The Clean Development Mechanism: A Review of the First International Offset Program, Arlington, Pew Center on Global Change, 2011.

Kirkman, G. A., Seres, S., Haites, E., Spalding-Fecher, R., Benefits of the Clean Development Mechanism, Bonn, United Nations Climate Change Secretariat, 2012.

Lokey, E., Renewable Energy Project Development under the Clean Development Mechanism, London, Earthscan, 2009.

Subbarao, S., Renewable Energy Projects under the Clean Development Mechanism (CDM), Dunedin, University of Otago, 2010.

Thangavel, P., Sridevi, G., Environmental Sustainability Role of Green Technologies, New Delhi, Springer India, 2015.



Internet sources

http://unfccc.int/key_steps/doha_climate_gateway/items/7389.php#Specific_Outcomes (accessed 2015-05-25)



1 Beyerlin, U., Marauhn, T., International Environmental Law (Oxford, Hart Publishing Ltd, 2011) [hereinafter: Beyerlin/Marauhn] p.159.

2 United Nations Framework Convention on Climate Change, FCC/INFORMAL/84/Rev.1, United Nations (Rio de Janeiro, 1992) [hereinafter: UNFCCC] Article 2.

3 UNFCCC, Article 3(1).

4 Beyerlin/Marauhn, p.159-160.

5 Article 7-11, UNFCCC.

6 Beyerlin/Marauhn, p.160-161.

7 Beyerlin/Marauhn, p.161-162.

8 Kyoto Protocol to the United Nations Framework Convention on Climate Change, United Nations (1998) [hereinafter: KP] Article 3(3).

9 KP, Article 3(4).

10 Beyerlin/Marauhn, p.162.

11 KP, Article 13-15.

12 http://unfccc.int/key_steps/doha_climate_gateway/items/7389.php#Specific_Outcomes.

13 KP, Article 12.

14 Beyerlin/Marauhn, p.163.

15 Subbarao, S., Renewable Energy Projects under the Clean Development Mechanism (Dunedin, University of Otago, 2010) [hereinafter: Subbarao] p.67.

16 Thangavel, P., Sridevi, G., Environmental Sustainability (New Delhi, Springer India, 2015) [hereinafter: Thangavel/Sridevi] p.124.

17 Kirkman, G. A., Seres, S., Haites, E., Spalding-Fecher, R., Benefits of the Clean Development Mechanism (Bonn, United Nations Climate Change Secretariat, 2012) [hereinafter: Kirkman et al.] p.13 (Brundtland Report quoted).

18 Thangavel/Sridevi, p.125.

19 Thangavel/Sridevi, p.124.

20 Gillenwater, M., Seres, S., The Clean Development Mechanism (Arlington, Pew Center on Global Change, 2011) [hereinafter: Gillenwater/Seres] p.8-9.

21 Thangavel/Sridevi, p.125.

22 Subbarao, p.77.

23 Subbarao, p.76.

24 Lokey, E., Renewable Energy Project Development under the Clean Development Mechanism (London, Earthscan, 2009) [hereinafter: Lokey] p.12.

25 Subbarao, p.120.

26 Gillenwater/Seres, p.30.

27 Thangavel/Sridevi, p.127-128.

28 Subbarao, p.88 and 90.

29 Subbarao, p.88.

30 Gillenwater/Seres, p.31.

31 Lokey, p.4 and 13.

32 Gillenwater/Seres, p.30-31.

33 Lokey, p.9 and 11.

34 Kirkman et al., p.13.

35 Kirkman et al., p.25.

36 Carrie, L., Lazarus, M., Bioenergy Projects and Sustainable Development (Somerville, Stockholm Environment Institute – U.S. Centre, 2011) p.8.

37 Kirkman et al., p.25.

38 Kirkman et al., p.25.

39 Subbarao, p.135-136.

40 Gillenwater/Seres, p.30.

41 Subbarao, p.262.

42 Gillenwater/Seres, p.30.

43 Subbarao, p.261.


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