Asia CDM Stakeholder Consultations and Implications for CDM AR & REDD+

A CDM policy dialogue with Asian stakeholders took place in Bangkok from 7-8 June 2012. Asia has more than 80% of the registered CDM projects in the world. What did the participants have to say about CDM’s impact and future prospects, and what are the implications for CDM forestry projects and REDD+? Read more...

 

The Durban Climate Change talks last December extended the Kyoto Protocol and its Clean Development Mechanism (CDM) into a second commitment period while new mechanisms are to be worked out for global agreement and compliance starting from 2020. In this final year of the first commitment period, it is now time to take stock. What has CDM achieved, where does it need improvement, what is its potential future and what can it contribute to emerging new mechanisms?

 

These questions were the focus of the CDM policy dialogue with Asian stakeholders in Bangkok from 7-8 June 2012. This dialogue was one of a series of consultations with CDM stakeholders conducted by an independent panel appointed by the United Nations Framework Convention on Climate Change (UNFCCC).  The panel also conducts research on specific items raised in a public call for inputs from October 2011 to January 2012. It will submit its final report from the research and consultations in September 2012, and the report is to feed into intergovernmental negotiations for improving CDM and for designing new agreements.

 

CDM and CDM AR in Asia

Asia is the biggest CDM player. Bulk (68%) of the 4201 registered CDM projects in the world as of June 11, 2012 are in China (2044) and India (839). Southeast, South and East Asia make up 81% of the global total with 3430 registered projects. Other Asian countries with substantial numbers of projects include Vietnam (120), Malaysia (106), Indonesia (76), Thailand (69), South Korea (67), Philippines (58) and Pakistan (14). Nepal, Bhutan, Bangladesh, Cambodia, Singapore, Mongolia, PNG, Sri Lanka and Laos have less than 10 registered projects each.

 

Forestry projects (limited to afforestation reforestation or AR under the CDM) comprise a fraction of the registered CDM projects. There are 39 registered CDM AR projects to date, 11 of them are in Asia, 12 in Africa, 14 in Latin America and 2 in Europe. Asia has 13 projects in the pipeline. Similar to overall CDM, bulk of the Asian CDM AR projects are also in India (7 registered, 6 pipeline) and China (3 registered, 3 pipeline). Vietnam has 1 registered project; and Indonesia (2), South Korea (1) and Laos (1) have projects in the pipeline. India appears to be the dominant CDM AR player in Asia.

 

Asian consultation

The Asia stakeholder consultation held in Bangkok from 7-8 June 2012 was led by Ms. Changhua Wu from the Climate Group and Dr. Prodipto Ghosh from The Energy Research Institute (TERI). Twenty four participants attended the consultations – representatives from Designated National Authorities (DNAs) across Asia, Designated Operational Entities (DOEs, independent verification agencies), private companies, financial organizations, voluntary standards organizations and Forest Carbon Asia.

 

The panel focused on three areas – Future context of CDM, Impact of CDM and Governance of CDM. Comments were invited on specific questions within each category. The discussions offered interesting insights into the current state and thinking around CDM and other climate change mitigation prospects. I present here some of the feedback from other participants and its implications for CDM forestry projects and REDD+ (Reducing emissions from deforestation and forest degradation plus other activities).

 

Future Context and role for CDM

Participants concurred that CDM had a role to play in any future carbon mechanisms and market scenarios. A sample of responses –

“CDM has long-term experience in developing modalities. Learn from the lessons and implement what works.”
“Lots of effort already put in, so there should be a role for it in the future. Bring CDM up above the Kyoto Protocol, into the UNFCCC.”
“CDM can inform new markets.”
“CDM can still assist countries to meet targets.  It created a multilateral rules-based system and institutions that can be built on. It can provide common rules to combine markets and make credits fungible.”

 

Mr. Ingo Puhl, Managing Partner of South Pole Carbon Asset Management Ltd. elaborated further, “CDM is now a teenager. It is a well-regulated transparent system to get low-cost emission reductions. The core building blocks in CDM – regulatory bodies, processes – are conducive for scaling up. In the Kyoto Protocol phase, it helped Annex 1 countries meet their requirements. CDM rules and guidelines can now be scaled up and help developing countries meet their low carbon development plans.”

 

Mr. Puhl further indicated that CDM was a performance-based approach. It channeled investments into low-carbon technologies that worked on the ground. “Unlike development assistance, there are no pockets in between,” he commented.

 

Mr. Naresh Sharma, DNA representative from Nepal observed that a simple mechanism was needed for LDCs (Least Developed Countries). “There can be bilateral south-south cooperation projects, for example Thailand can help Laos build hydropower projects under the CDM,” suggested Mr. Puhl.

 

Ms. Naomi Swickard, AFOLU manager at the Verified Carbon Standard Association, proposed that CDM could act as an overall regulator over different emerging systems and ensure that the credits are fungible.

 

Depressed markets

Majority view was that low carbon prices due to low targets of Annex 1 countries and uncertainties over the future was a disincentive for developing investments.

 

“Why do you need new markets and mechanisms to create credits when you already have oversupply?” asked Mr. Xuedu Lu, the Asian Development Bank’s (ADB) advisor on climate change, “Emission reduction targets and demand are too low.”

 

Mr. Dicky Hindarto, Head of the Indonesian DNA Secretariat, expressed concerns about the market prospects of CERs that will emerge from registered and pipeline CDM projects in Indonesia. “Can they be sold and to whom?” he asked, “European demand is reducing. If no decision is made, we will have to make our own decisions and look for other options. We need to meet our low carbon development goals and achieve common global goals.”

 

CDM and REDD+

Mr. Hindarto posed a similar question with respect to REDD+ as he did with overall CDM, “There are many early REDD+ projects and sub-national sites in Indonesia. Who will buy the credits from REDD+?”

 

Mr. Albert Magalang, Head of the Philippines Climate Change Office, expressed his concern over the concept “Forests in exhaustion” being proposed by Brazil to be included in the CDM. “The definition conflicts with that of “reforestation” under the CDM AR and could create confusion for both CDM AR and REDD+. New proposals should be harmonized with existing definitions to promote forest-based mitigation,” he reiterated.

 

Project-based offset generation and sectoral mitigation in the future climate mitigation architecture

Participants believed that project-based activities that can be scaled up could remain part of the climate mitigation architecture. Project activities were important and could be appreciated – they had clear boundaries and provided clear emission reductions.

 

Sectoral mitigation approaches have been proposed as a way to achieve sector-wide transformations and overcome concerns over the current CDM project model such as strength of the incentive and contribution to sustainable development.

 

Participants felt that sectoral mitigation may be difficult to achieve. “It is difficult to set the baseline.” “Who will collect the data that has to come out of so many sources?” “How do you define a sector?” “Who will govern the whole sector?” “Is REDD+ sectoral mitigation?”

 

Ms. Vu Thi Kim Thoa, Vice Director of entec ESCO Vietnam Ltd. suggested that alternatively administrations at different levels (city, provincial governments) could be made responsible for mitigation within their jurisdictions including CDM projects within. They would report to higher government levels and ultimately to the UNFCCC. Projects could be registered at the sub-national level and still be acknowledged.

 

Who should oversee CDM

There was consensus that the UNFCCC was the best organization to oversee the CDM, most governments were part of it. Legislations and institutions had been set up, and it was better to extend and strengthen the prevailing system instead of starting anew.

 

“CDM should be operated from and firmly anchored within the UNFCCC,” concluded Mr. Rajiv Kumar, the DNA representative from India.

 

How has the world changed since the Kyoto Protocol (1997)

There had been lots of talk since 1997 and participants felt the talk was helping.

 

“The Kyoto Protocol may not save the planet but it has brought about engagement among countries and established a process,” said Mr. Magalang from the Philippines Climate Change office.

 

“The world should be proud of this big achievement. There is now heightened awareness on climate change, much of it promoted by the CDM,” commented Mr. Lu from ADB.

 

“It has been a big success. With the level of investment, it is the biggest public-private partnership there is. All countries have a say which is very integral,” stated Mr. Puhl from South Pole. They would like to see the CDM upgraded and moved up directly under the UNFCCC.

 

Impact of CDM – Mitigation

Should CDM contribute to net mitigation?

 

“It does,” said Mr. Puhl. “Since conservative baselines are used. Also many projects were initiated but were not able to complete the issuance cycle.”

 

“Barriers were removed from first-of-a-kind projects leading to autonomous extension of similar activities,” observed Mr. Sanjeev Kumar of SGS India Pvt. Ltd., a DOE.

 

According to Mr. Rajiv Kumar from the Indian DNA, CDM should contribute to net mitigation of GHG emissions of Annex 1 countries.

 

Impact of CDM – Sustainable development

There was a long and many-faceted discussion on whether CDM had contributed to its other main goal – sustainable development. General opinion was that CDM by its very nature of promoting and proliferating low-carbon technologies and achieving emission reductions had contributed to sustainable development.

 

“In aggregate, yes, but some have expressed that on a case-by-case basis, it may have caused negative impacts,” prompted Mr. Prodipto Ghosh. Mr. Rajiv Kumar from the Indian DNA responded that it was the country’s role to decide what sustainable development was and whether the project adheres to it or not is checked at the time the DNA issues approval. “National governments have sovereign rights to lay down policies,” he indicated.

 

“Including the question of investigation and enforcement of complaints?” prompted Mr. Ghosh again, “Is it solely the DNA’s authority and the Executive Board should not step in?” Mr. Magalang from the Philippines Climate Change Office suggested that the DNA should have the power to withdraw the project if there are investigations and ask the Executive Board to stop the issuance of credits.

 

Mr. K.V. Raman of Det Norske Veritas As (DNV), a DOE, indicated that there were no measureable sustainable development indicators in the CDM Project Design Document (PDD). If indicators and parameters were included as is done under the Gold Standard, the DOEs could check and verify compliance.

 

Ms. Ellen May Zanoria, Southeast Asia regional manager at the Gold Standard Foundation said that the Gold Standard had 12 sustainable development indicators. The project proponents decided what to follow and the DOEs monitored the same at every verification. The need for continuous monitoring of sustainable development criteria over project implementation was also raised by others. Such monitoring would also be useful for reporting on achieving this outcome.

 

“Indonesia has developed 24 criteria as guidance for CDM project developers and projects may not pass if these sustainable development criteria are violated,” said Mr. Hindarto from the Indonesia DNA office. Thailand had developed the Crown standard for achieving sustainable development goals in CDM projects.

 

“CDM and non-CDM projects could have the same sustainable development requirements and guidance. But CDM projects could be more compliant because it affects their CERs,” observed Mr. Magalang.

 

Opinion was divided on whether an international agreement on sustainable development criteria was required or not. Most participants believed there could be an international checklist/ guidelines to ensure no harm and then no interference beyond that. DNAs should be free to pick and choose relevant ones or add to the list.

 

A few believed the sustainable development criteria should be left entirely to national governments to decide. “We do not support internationally-developed guidelines. As a sovereign country, we reserve the right to decide what is best for us,” stated Mr. Rajiv Kumar from the Indian DNA office.

 

Ms. Kim Thoa from entec ESCO suggested, “The UN should encourage every CDM project to report how they contributed to sustainable development as set out by the host country. Then both the country and the UNFCCC can report on how their projects contributed.”

 

Current validation/ verification model

A key issue debated was the independence of the DOEs given that they were hired and recompensed by the project proponents themselves, and thus likely inclined to give favorable reviews. “As suggested by some in other consultations, should the Executive Board recruit the DOEs and pay for the verification?” enquired Mr. Ghosh.

 

Mr. Puhl disagreed. “The accreditation contract between the DOE and the UNFCCC assures DOE performance and if DOEs perform badly, their credibility is at stake. They have a lot to lose,” he said. “Twenty nine percent of projects reaching validation are rejected by the DOE or are withdrawn, so the system works. And it is similar to established practice in other professions as well such as financial auditing.”

 

Mr. Raman from DNV thought contracting of DOEs by the Executive Board was actually a good suggestion if implementable. “It will resolve conflict of interest and familiarity issues,” he commented. Mr. Sanjeev Kumar from SGS agreed and added, “It can be difficult to get complete payment if negative opinions are given.”

 

Mr. Praveen Urs from TÜV Rheinland, another DOE, disagreed. TÜV Rheinland had given perhaps the largest numbers of negative reviews and had had no problems receiving payments so far.

 

Mr. Lu from ADB expressed the view that the UN should play a supervisory role and not try to do everything.

 

Additionality

Additionality is the requirement that the emissions reductions are below that which would have occurred under the baseline scenario in the absence of the registered CDM project. The only observation on additionality requirements came from Ms. Tsering from Bhutan. She commented that the additionality requirements did not help countries such as Bhutan that were already propagating green energy.

 

Stakeholder consultations

Ms. Zanoria of Gold Standard Foundation suggested that more prescriptive guidelines could be issued such as who to invite to the consultations and how. Stakeholder meetings should be documented and communities themselves should be able to see the results. There should be further ongoing communications with local communities. The Executive Board could provide guidelines and the DOEs can check and interview stakeholders as part of the verification process.

 

“In the Philippines, project developers have to issue an MOU based on stakeholder consultations, and the MOU serves as a binding document on the agreements reached,” commented Mr. Magalang.  

 

Mr. Lu from ADB expressed that appropriate consultations were required to conduct serious business and countries should be able to come up with their own prescriptions. He thought some NGOs were very negative about CDM projects and this was not very constructive.

 

“Stakeholder consultations should be handled by the DNA, the UNFCCC taking it up would lead to undesirable micromanagement,” stated Mr. Rajiv Kumar from the Indian DNA office.

 

Mr. Puhl thought that current stakeholder consultation processes were fairly adequate and that it was a sovereign issue.

 

What do all these responses mean for CDM AR and forestry projects?

In other sectors such as renewable energy and waste management, it looks like CDM has contributed to alternative development in countries like India, China and Vietnam. Renewable sources now contribute about 12-13% of India’s energy and the government plans to raise that to 30%. China topped the list for renewable energy investments in 2011, spending US$ 52 billion, almost one-fifth of the global total.

 

Forestry plays a minor role in the CDM as it stands with only afforestation reforestation (CDM AR) projects included. Most forest mitigation activities take place in the voluntary carbon markets at present. Focus and attention within the UNFCCC and within developing countries has shifted to the new REDD+ concept and mechanism which has an expanded scope and involves national-level accounting.

 

However, CDM AR has built and refined modalities, rules and institutions and set up a transparent process for reducing emissions via field-based projects. Project numbers have risen over the last years. A ground review of CDM AR projects are required now to assess and understand the experiences –  whether the current projects contributed to sustainable development and net mitigation, what additional financing they were able to tap, whether they were low-cost, whether the process needs refinement and whether there was adequate stakeholder consultation. The experiences and lessons could serve to inform REDD+ development and to improve and frame the future context of forestry under the CDM.

 

Given high environmental and local livelihood concerns in forest and natural resource related projects, more attention needs to be paid to establishing clear safeguards and monitoring and enforcing the same throughout CDM forestry project implementation. The CDM process could learn from the emerging REDD+ requirements and readiness activities on safeguards and stakeholder consultation processes.

 

It would help for the countries to lay down clear sustainability criteria and indicators for CDM forestry projects, and for this to be checked over project implementation by DOEs and reported on. A checklist/ guidelines from the UNFCCC could help countries prepare their own lists. Ideally, local community stakeholders should participate in the assessments and be informed of the outcomes through appropriate communication methods. A transparent process would create credibility and raise the value of the credits generated.

 

Stakeholder consultations could be improved through more prescriptive guidelines to ensure inclusive and effective participation all the way from project inception through implementation. Consultation process and outcomes should be clearly documented. MOUs indicating agreements between stakeholders would be useful for common understanding and enforcement. DOEs can check the consultation processes as well at every verification. REDD+ pilots are beginning to conduct Free, Prior and Informed Consent (FPIC) processes using independent agencies and national level safeguards are being built through participatory processes.

 

The additionality issue is a major consideration in forestry projects. Loopholes could be plugged to avoid including large common-practice industrial plantations under CDM AR. Also some of the CDM AR additionality criteria could be assessed in detail for how they fit to different ground scenarios. Breaking down certain barriers may not necessarily be a positive outcome.  For example, overcoming local traditions or local ecological conditions to plant certain tree species may not necessarily be a sustainable approach.

 

Project-based activities are useful in the forestry sector. Project sites can have clear boundaries, ownership and management plans for creation of emissions reductions. Performance-based payments can flow directly to the managers and other stakeholders on the ground.

 

However, to enhance the scale of emission reductions and avoid leakage and double counting, a scaled-up national-level mechanism REDD+ is being negotiated. What is the role for CDM AR type activities in the future and in relation to REDD+? It is now well-recognized that forest carbon projects if permitted, cannot be conducted as stand-alone activities in the future. Projects and other sub-national activities will have to nest within and be accounted for as part of the overall national system. Will REDD+ be included under CDM? Or the reverse, where CDM AR type activities can potentially be carried out under the larger REDD+ concept?

 

At the moment, CDM and CDM AR help developed countries offset their emissions under the Kyoto Protocol.  It is envisioned that the components and procedures in the system can be scaled up and used to help developing countries also meet their emission reduction targets as per national plans and/or new international agreements. The UNFCCC, as an international body that all governments are a part of, will likely be the organization of choice for overseeing CDM, REDD+ and other new international mechanisms.

 

However, market prospects for CDM AR, CDM and REDD+ are unclear. All these mechanisms and any other new ones cannot exist without strong emission reduction targets and demand which needs to come out of international negotiations and national commitments. In the absence of international agreements, countries are developing independent bilateral and national-level mechanisms and it is unclear how these will fit under any future international framework. Again strong national targets and commitments will be required to sustain emerging bilateral and national-level mechanisms as well.

 

Overall there has been increased engagement and discussion among countries since the Kyoto Protocol. There is now heightened mainstream awareness of climate change and environmental issues with CDM and other mitigation mechanisms being implemented on the ground. Further, REDD+ discussions and proposed performance-based payments have resulted in a major opening up and examination of forestry sector concerns across the developing world like never before. Can the momentum be used to make a real long-lasting shift to alternative sustainable development pathways that benefit the climate, biodiversity and people?