1. www.perspectives.ccbutzengeiger@perspectives.cc Where is the CDM’s future? Some critical observations and reform proposals Oxford, September 19 th 2005 Sonja Butzengeiger Perspectives Climate Change Hamburg Institute of International Economics

2. www.perspectives.ccbutzengeiger@perspectives.cc Contents of Presentation  Recent CDM experiences and problems  CDM: lame duck or success story?  Real contribution to sustainable development?  Slow registration of projects  High transaction costs (TAC)  Registration/approval risk  Post-2012 uncertainty  Insufficient incentives for private Annex-B investors  Proposed solutions  Shortening of approval times, reduction of TAC  Long-term planning security  Expanded applications for CERs  Enhanced SD-benefits (project type, levies)  Discussion

3. www.perspectives.ccbutzengeiger@perspectives.cc Review of CDM-developments Lame duck or success story? 1997 - Kyoto Protocol 2001 - Marrakech Accords 2002 -Set-up of CDM-EB, development of PDD-template 9 DNA-Host Country, 1 Investor Country 2003 -First baseline-submissions, none of the 35 accepted DNA-boom at year end: 33 + 8 new DNAs 2004 -1 st CDM-project registered Current demand for 1 st Kyoto-Period 2-3 billion tons CO 2-eq, (of which 1.5 billion by funds alone)

4. www.perspectives.ccbutzengeiger@perspectives.cc Lame duck or success story? > 175 projects, estimated CER- volume 341 Mio. until 2012

5. www.perspectives.ccbutzengeiger@perspectives.cc (April 2005) Trends in submitted project methodologies 45% Small Scale !

6. www.perspectives.ccbutzengeiger@perspectives.cc Real contribution to SD?

7. www.perspectives.ccbutzengeiger@perspectives.cc Barriers against CDM-investment Slow registration of CDM-projects  Lead-time of 1-2 years (with/without AM)  Cut-off date 31.12.05 for pre-registration crediting High up-front transaction costs  Regular scale projects with AM  PDD + validation + registration = 25,000-60,000 EUR  Verification = 5,000 -10,000 EUR  EB Administration fee = ?  Host country approval = ?  Lower for small scale projects, but generally not viable if less than 20,000 CERs/year

8. www.perspectives.ccbutzengeiger@perspectives.cc CDM Barriers II Difficult additionality assessment  Business as usual versus additional benefits  Opposed by business, but needed from environmental and SD- perspective  Consolidated additionality test of EB - complex High risk of rejection  Average rejection rate is 50%  Especially for complex project types as energy efficiency + transport (SD-benefits), and forestry Low incentives for business engagement in past  Now EU-ETS Post 2012-uncertainty  Closing window for investment opportunities

9. www.perspectives.ccbutzengeiger@perspectives.cc Contents of Presentation  Recent CDM experiences and problems  CDM: lame duck or success story?  Real contribution to sustainable development?  Slow registration of projects  High transaction costs (TAC)  Registration/approval risk  Post-2012 uncertainty  Insufficient incentives for private Annex-B investors  Proposed solutions  Shortening of approval times, reduction of TAC  Long-term planning security  Expanded applications for CERs  Enhanced SD-benefits (project type, levies)  Discussion

10. www.perspectives.ccbutzengeiger@perspectives.cc Proposed Solutions I Shortening of approval periods  Strict timelines for international bodies  need to secure sufficient personal capacities  Shortening of pre-registration period (4 instead of 8 weeks)  Accelerated development of consolidated methodologies Reduction of TACs  Allowing bundling for unlimited sizes  Centralized database for baseline data  Sectoral CDM  Streamlined but environmentally integer additionality determination  Decision on administration fee and cross-subsidization of small projects

11. www.perspectives.ccbutzengeiger@perspectives.cc Proposed Solutions II Contribution to SD  Financially supported development of methodologies for energy efficiency and transport  Higher adaptation levy for low-development benefit projects  Concentration of capacity building in low income countries with high emissions Increased incentives for business participation  Crediting of CERs against domestic climate policy instruments  Planning certainty beyond 2012

12. www.perspectives.ccbutzengeiger@perspectives.cc Proposed Solutions III Provide long-term CDM perspective  No such perspectives without long-term international climate policy regime  Constructive Post-2012 negotiations need both  additional commitments by current Annex-B countries, but also  clear commitments by recently industrialised countries and major emitters from the developing world.  Difficulty to merge intensity targets with CDM-concept  Unilateral declaration of post-2012 CER validity

13. www.perspectives.ccbutzengeiger@perspectives.cc The floor is open.. Discussion