The Clean Development Mechanism (CDM), once the flagship for supporting climate action in developed and developing countries, is facing tough times. Estimates by UNEP-Risoe show a massive imbalance between supply and demand for carbon credits in the coming years. It has been predicted that about 7 billion CDM credits will be generated between 2013 and 2020 and demand for those credits may not surpass 3 billion tonnes; therefore, it is expected that the price for CDM credits will further collapse, bringing the mechanism to a standstill. However, this does not imply the end of climate action in developed and developing countries. It points to a paradigm shift in the role of off-setting mechanisms in future climate regimes. CCAP’s Director of CCAP-Europe, Tomas Wyns, provided insight into these happenings during the MAIN-Asia meeting this week.
Tomas was quick to point out that the fact that the CDM will come to a halt does not mean that the concept of carbon markets as a policy instrument will cease. Within the last few years we have seen more countries following the example of the EU with the introduction of domestic cap and trade systems. We have the Australian and Californian systems that have just come online, and the existing New Zealand and Korean cap and trade systems that will start shortly. India is currently implementing the exemplary Performance Achieve and Trade System, which is a trading system for energy efficiency in industrial sectors. In addition, it is expected that different regions in China will start with carbon trading systems in the next years. All these developments are quite promising.
Many developing countries fear that if the CDM comes to a standstill other sources for climate finance will not be ready to replace it. The absence of a functioning CDM will require a paradigm shift in how developing countries design their National Appropriate Mitigation Actions (NAMAs) and how developed countries and the private sector support these. For developing countries this implies the development of NAMAs guided by sustainable development and a policy architecture that follows criteria that minimize the risk for donor countries. Developed countries and the private sector will need to look beyond the value of carbon when supporting NAMAs.
Investing in NAMAs, if done appropriately, is investing in essential infrastructure for low-carbon and sustainable development in developing countries.