Possible Development of CDM in the Post-2012 Regime DUAN Maosheng Tsinghua University Beijing, Nov. 19, 2007

Outlines 1. Why CDM/flexible mechanisms 2. Proposals on future development of CDM 3. Main considerations under these proposals 4. Possible way forward

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

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

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

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

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

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

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

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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