Gazing into the CDM Crystal Ball

Katy Yan

Could a decrease in offsets mean an increase in energy efficiency?
Could a decrease in offsets mean an increase in energy efficiency?
The latest Clean Development Mechanism Executive Board meeting ended right after a new World Bank report was published saying that investment in the CDM fell by 59% in 2009 (State and Trends of the Carbon Market).

2009 was the second year in a row that investment has declined (2008 experienced a 12.3% year-to-year drop). The current trend of decreasing demand and development of new projects is a partial product of the recession (less capital = lower emissions and less demand for offsets) and of the unclear future of the CDM after 2012, which is when the Kyoto Protocol expires. It's also likely that the CDM Executive Board's increased scrutiny – in part due to sustained criticism from experts and civil society – has created a disincentive for some carbon market players to enter or remain in the CDM field.

At this last board meeting (number 54 if you're keeping count), the Executive Board placed 11 more projects applying for credits under review on the grounds of questionable additionality and compliance with UN guidelines (Point Carbon, June 9, sub req'd). Nine of the 11 are from China, including four wind power, three hydro, and two energy efficiency projects. The controversial auditor of CDM projects, Germany's TUV-SUD, remains suspended.

Other developments at the meeting include:

  • A new loan for "small projects" in countries with fewer than 10 registered projects, which would support the development of project documents; and
  • A decision to look into the possibility of outsourcing certain tasks outside the UN.

As the future of the CDM is still unclear, these new decisions could muddy the waters if done without the input of project stakeholders, including affected communities. Will the loan create a conflict of interest, since it's asking the CDM to approve projects into which it's invested its own money? Will outsourcing some of the work lead to poor quality regulation? Gaze into your crystal ball – what do you see?