1. THE KYOTO PROTOCOL AND BEYOND: A LEGAL PERSPECTIVE, Siena June 10, 2006
The Clean Development Mechanism: Challenges and Opportunities Axel Michaelowa

2. Structure of presentation
The CDM and its rules
The CDM project pipeline
Baseline and additionality
The international CDM supply, demand and prices
Host countries and project types
Buyers
Price levels
Challenges for the CDM

3. The principle of the CDM
Emissions trading JI
CDM
CERs
AAUs,
ERUs
To avoid
fictitious
reductions,
a complex
procedure
has been
established
Country 1
Kyoto commitment
Country 2
Kyoto commitment

4. Status of the CDM project cycle (31/5/2006)
changes
COP/MOP
3 members can propose review within 15 days to be donewithin 30 days
elects
2% adap-tation tax
Rulebook
29+9 baseline and monitoring methodologies
elects
Executive Board
(10 members)
decides on new rules within 4 months
with-holds 4
industrial
countries 5
develo-ping countries
1 AOSIS 53
methodologies
pending
comment new rules within 8 weeks
accre-dits 15
spot checks
Certifier (DOE): 16
3 members propose review within 8 weeks
Certifier: 5
Countries
Stake-holder
Observers
200
Currently
18 applications
is-sues
comment within 30 days 60
registers 28 69
CDM
pro-ject
Project design document:
Baseline
Monitoring
Approval
Methodology if first of its kind
524 26
Monitoring report
Verification
Project partners
Validation
or for-warding of new metho-dology
CERs 5
Investor countries 19
authorise
authorise
Certifi-cation
Involved countries
Project partners
DNA
Involvedcountries 76
Host countries

5. The baseline: emissions without the project
a) old coal fired power station 1200 g CO2/kWh.
b) gas turbine 450 g CO2/kWh
c) 850 g CO2/kWh
Factor of 3!

6. The additionality test
Suggested by EB, but not mandatory
Would the project have happened otherwise?
Steps in the consolidated test
Identification of alternatives to the project
Investment analysis
Determine that the project is not the most economically or financially attractive, or
Proof of prohibitive barriers
Common practice analysis
Tricky because needs complete market overview
Impact of CDM registration on overcoming barriers
Initially many projects with doubtful additionality have been registered
After setup of the RIT scrutiny has increased and 4 projects put under review

7. CER supply (million until 2012)
Total CER estimate just passed the 1 billion mark!

8. CER supply (host countries)
Registered projects (million until 2012)

9. CER supply (host countries)
Submitted projects (million until 2012)

10. CER supply (project types)
Registered
projects

11. CER supply (project types)
Submitted
projects

12. Drivers and barriers for CER supply
Availability of reduction options
Large, cheap options are starting to get scarce
HFC-23, N2O, large landfills
Solution: bundling of smaller projects
Availability of methodologies and related data
Interesting project types still have no approved methodology
Energy efficiency in generation, transport, PFC
Approved methodologies have too narrow applicability criteria
Data for using approved methodology may not be available
Solution 1: deviation (Brazil, China)
Solution 2: centralized data collection and publication (India)
Availability of finance
Limited willingness of local banks to provide finance
International finance providers (Ecosecurities) can close gap

13. CER and ERU demand (million €)
Total: > 3 billion €
Wide range of buyers: 

14. Global transactions 2005 (million t CO2)
Total: 800 million t
Source: Point Carbon

15. CER price (€)
Huge gap between different ”qualities” of CERs

16. Technology and Development Cooperation
Two paths for post-2012
First Step
Second Step
Ultimate Regime
2013?--
2030?--
“Cap First” Strategy
Kyoto Protocol:
Cap & Trade
Regime
Another Cap
& Trade Regime
Ultimate Regime:
Consists of
Cap& Trade,
Technology, and
Development
Mutually Reinforce, Or Conflict?
Technology and Development Cooperation
“Empower First” strategy

17. Conclusions
CDM has mobilized 1 billion t emission reduction in over 800 projects in non-industrialised countries
Additionality of some projects is doubtful
Complaints regarding sustainability benefits
One tonne CO2 reduction can be sold for 5-15 €, total demand is over 3 billion €
Recent price crash did not kill the CDM market
CDM investment could dry up if the negotiations on the post-2012 climate policy drag on
Programmes, sectoral CDM?

18. Thank you. Further information: www. perspectives
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