New Sustainable Energy Direction for the Clean Development Mechanism

On 6 March 2012, the Executive Board of the Clean Development Mechanism (CDM) approved a new methodology that will enable rural households in developing countries to swap kerosene lamps and diesel generators for clean renewable energy and potentially benefit from carbon emissions trading. This sustainable energy direction ties in with the UN’s International Year of Sustainable Energy for All and perhaps will help restore some trust in the CDM. The prices of the CDM’s Certified Emissions Reductions (CERs) have not been performing very well of late, and in addition, there have been some concerns about the environmental benefits of certain CDM methodologies. In consequence, the new methodology will improve the “image” of the CDM and perhaps, even do some good to the price of CERs.

In short, the CDM is one of the Kyoto Protocol’s flexibility mechanisms, allowing industrialised countries to offset their greenhouse gas emissions by way of carbon credits generated through emission reduction projects in developing countries. The CDM is therefore the basis for carbon emissions trading on the compliance carbon market. The first five-year period of the Kyoto Protocol expires at the end of 2012; the EU Member States have nevertheless opted for a second commitment period starting in 2013,  alesco
thus securing the continuation of the CDM compliance carbon market.

The new CDM-approved methodology can be used in projects that install renewable power generation technologies, such as solar panels, in communities with no access to electricity, provided that 75 percent of the consumers are households. In this way, carbon credits generated from projects reducing greenhouse gas emissions and contributing to sustainable development will be included in carbon emissions trading.

As stated on the CDM website, the methodology includes for the first time the concept of “suppressed demand” that allows project developers in a least developed country to assume some level of future development and a certain projected level of emissions, and propose a project, aimed at reducing those future emissions with the help of clean technology. The main idea of the suppressed demand concept is that it gives rural communities the option to leap-frog dirty technologies and to go straight to a no-emitting or low-carbon technology in their economic development.

2012 is declared by the UN Member States to be the International Year of Sustainable Energy for All and in addition, the UN Secretary-General Ban Ki Moon stated during the 66th United Nations General Assembly that focus should be given to rural electrification especially when it comes to the poorest segments of the population. It is obvious that this position is to a large extent reflected in the newly-adopted CDM methodology.

Besides contributing to sustainable development of rural areas, the clean energy methodology will perhaps also help restore faith in the environmental integrity of the CDM, which has been questioned on multiple occasions. For instance, from 2013, certain CERs will be banned from the EU Emissions Trading System (EU ETS), which is currently the most advanced instrument for carbon emissions trading in the world. According to the European Commission, allowing carbon credits from projects involving destruction of industrial gases such as HFC-23 can create an incentive to continue to produce or even increase production of it and of HCFC-22, another ozone-depleting substance. Furthermore, in November 2011, the Stockholm Environment Institute (SEI), an independent international research institute, raised some questions about the CDM crediting rules, since they could lead to over-crediting of higher-efficiency coal power plants.

Naturally, with the approaching of 2013 when the decision of the European Commission to exclude the problematic CERs from the EU ETS will come into force, the demand for those carbon credits is likely to fall. The new methodology, however, might spur some interest in CERs generated from sustainable energy projects in the least developed countries, and that will definitely be good news for the CDM, which despite its flaws, is still one of the major global tools for climate change mitigation, and an important source of financing for developing countries.

Combining emission reduction efforts and sustainable energy is an excellent way to address two of the most pressing issues of the contemporary world – climate change and development – with carbon emissions trading [] that has proved to be a strong investment incentive. Yet, only time will show whether the CDM [] decision makers will stick to this positive sustainable development trend.

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