CLEAN DEVELOPMENT MECHANISM

The UNFCCC

• The United Nations Framework Convention on Climate Change (UNFCCC) is an

international environmental treaty produced at the United Nations Conference
on Environment and Development (UNCED), informally known as the Earth
Summit, held in Rio de Janeiro from 3 to 14 June 1992. The treaty is aimed at
stabilizing greenhouse gas concentrations in the atmosphere at a level that
would prevent dangerous anthropogenic interference with the climate system.
• The UNFCCC Conference of Parties (countries) met for the first time in Berlin in
1995.
• Since then, 14 conferences have been held in various parts of the world. COP-8
was held in New Delhi in 2002. COP-15 is due in december 2009 in Copenhagen
• COP-3 held in Kyoto, Japan in December 1997 by far remains the most important
milestone of the UNFCCC and the resolutions adopted in this conference after
intense negotiations came to be known as the Kyoto Protocol.
 The Kyoto Protocol

• The major feature of the Kyoto Protocol is that it sets binding targets for 37
industrialized countries and the European community (Annex-I countries) for
reducing greenhouse gas (GHG) emissions . These amount to an average of five per
cent against 1990 levels over the five-year period 2008-2012.
• The first commitment period under the Kyoto Protocol expires in 2012.
• Six Green House Gases are covered under this protocol.
– Carbon Dioxide (CO2)
– Methane (CH4)
– Nitrous Oxide (N2O)
– Hydro fluorocarbons (HFC)
– Per fluorocarbons (PFC)
– Sulphur Hexafluoride (SF6)
 Ratification of kyoto protocol
• Almost every country has signed the treaty
but 169 countries have ratified the agreement.
Of the signatories, only USA refused to ratify
Kyoto
• Developed nations ratified the Protocol are
referred to as Annex I Parties,
• They are committed to reduce their collective
emissions of the GHG gases by 5.2 percent
below 1990 levels.
• The limits are parceled differently by nation
limits sets following the co2 emmision
• Non-Annex I nations have no GHG emission
restrictions, but are encouraged to develop
reduction projects because they can sell
resultant carbon credits to Annex I buyers.
• These consists of all the developing countries
Why US and has not ratified the treaty?
• USA is currently the largest emitter of carbon dioxide
in total of any country.
• US openly states they don't intend to meet the
requirements of emission reduction
• U.S.'s objections to the Protocol have been its
– potential national economic harm.
– No obligation for big developing nations like China
and India for reducing GHG emission.
– not been ratified by the U.S. Senate.
 The Kyoto mechanisms

• The Kyoto Protocol recognizes that developed countries are principally responsible
for the current high levels of GHG emissions in the atmosphere as a result of more
than 150 years of industrial activity, and therefore the Protocol places a heavier
burden on developed nations under the principle of “common but differentiated
responsibilities.”
• Countries must meet their targets primarily through national measures. However,
the Kyoto Protocol offers additional means of meeting their targets by way of three
market-based mechanisms.

• The three Kyoto mechanisms are:

– Emissions trading – known as “the carbon market" 

– Clean development mechanism (CDM)
– Joint implementation (JI)
• Of these three, only CDM is applicable
between developed and developing countries
that have ratified the protocol.
 What is CDM ?
• Allows emission-reduction projects in
developing countries(non- annexure 1
countries) to earn certified emission reduction
(CER) credits,
• Allows Annex I (industrialized) countries to
meet their emission reduction targets by
reducing emission in non-Annex I (developing)
countries
How CDM works?

United
India
kingdoms
 Condition under CDM

• Must have feature of additionality

• Should not be mandated by the government

 CER
• Certificates like stock
• Issued to developing countries for starting
renewable energy projects
• Each credit is issued for reducing emission
upto 1 ton of CO2
• Developed countries buy CER from developing
countries to achieve kyoto’s target
• Income from CER is not taxed in India .
CDM benefits to Annex 1 countries

• Can buy credits from non-annex 1 countries

• Can claim credits from UNFCCC by reducing

emission in non-annex 1 countries
CDM benefits to Non-Annex 1 countries

• Enhancement of technology
• Economic growth
• Cash inflow by selling CER
• Create a market of carbon
Sustainable development criteria for CDM
projects
 Treaty will expire in 2012 then what?

• United Nations Climate Change Conference in Copenhagen - COP 15 is on

dec 7 to dec 18.
• It is one of the most important event for the whole world
• Kyoto countries are negotiating the second phase of the agreement,
covering the period from 2013-2017
• Carbon sector will be highly effected
• India and other developed countries is expected to be caped in this treaty
• This will put emission cap on developing countries
• Companies can purchase or sell CER according to the requirements
• This will create a huge market for trading in India itself and outside as well
• Carbon market will be highly volatile
• If the treaty will be signed, huge potential for especially energy trading
students
 Criticism of CDM
• Received criticism from
Carbon trade watch,
wallstreat general,
theguardian, the
telegraph
• 30 to 50 % registered
projects are not
• These projects ultimately is
resulting net increase in
global emission as they don’t
offset carbon and they are
not additional
• Because of CDM , a big
carbon bubble building up
and leading to more emission
• Emission reduction that was
supposed to happen has not
actually happened
• Large part of carbon financing is going to large
industrial polluters
• They are generating 100s of millions by doing
cdm projects but no emission reduction is there
and using this money to expand there
operations and thus polluting more of carbon
• They are not focusing on protecting
environment but how to expand carbon market.
it is promoting more of carbon emission
• The CDM was designed to issue credits to
projects that are "additional"
• Cdm is subsidising hydropower projects
• Hydropower projects leads to GHG emission
• These projects are requesting over 60 million
credits per year
• Most of the projects (402) are in china as it is
world’s most prolific dam-builder
 Potential for energy trading students

• Providing consultancy to IPP.

• Helps them to get there projects registered for
claiming subsidies
• Helps them in registering there project to
UNFCCC
• Claiming for CER
• Selling credits to the market at the best price
 Major CDM consultants in India
• Ernst & Young Pvt Ltd
• The Louis Berger Group
• Senergy Global Ltd
• Darashaw & Copmany Pvt Ltd
• Cantor CO2e
• Foretell Business Solutions Pvt Ltd
• Siri Exergy & Carbon Advisory Services (P) Ltd,
• FICCI, Climate SD Services
 conclusion
• No matter how much successful Kyoto is in
reduction of carbon emission into the
environment , it has created a huge market for
carbon trading and with cop 15 in this
december , carbon market is going to expand
in future
• There is a lot of potential in the carbon market
for us