Wednesday, 30 January 2013
By Chatura Rodrigo
Background: Introducing the CDM
As defined by Article 12 in the Kyoto Protocol under the United Nation Frameworks Convention on Climate Change (UNFCCC), the Clean Development Mechanisms (CDMs) are one of three flexible mechanisms established with the purpose of assisting Annex I countries of the UNFCC to archive their committed amount of emission reduction in cost effective ways. It also allows contributions for the sustainable development of Non Annex I countries such as Sri Lanka.
The CDM is one of the Protocol's "project-based" mechanisms; in that the CDM is designed to promote projects that reduce emissions. The CDM is based on the idea of emission reduction "production". These reductions are "produced" and then subtracted against a hypothetical "baseline" of emissions. The emissions baselines are the emissions that are predicted to occur in the absence of a particular CDM project. CDM projects are "credited" against this baseline, in the sense that developing countries gain credit for producing these emission cuts.
Since 2001, the CDM projects have issued 1 billion Certified Emission Reduction (CER) units. Approximately, 63% of all CERs had been issued for projects based on destroying either Hydrofluorocarbons (42%) or Nitrous Oxide (21%), which is a conventional way of creating CERs. However, at the moment, the European Commission is proposing a full ban on CER’s from industrial gas projects. More than 1,000 CDM projects have qualified for carbon credits. Most of these are large-scale activities in the energy sector; in the waste sector, subsidized technologies include landfill gas, incineration, and cement kilns. India and China are the biggest takers, with a combined share of more than 50% of the projects. With some 3000 more projects awaiting registration, the CDM expects to generate nearly 3 billion CERs by 2012. Trade in CERs currently runs to an estimated US$ 10 bn a year. This has fueled a gigantic, global carbon trading market that is raking in huge profits for financing companies, consulting firms, brokers, and other market players. Currently there are five exchanges trading in carbon allowances: the European Climate Exchange, NASDAQ OMX Commodities Europe, PowerNext, Commodity Exchange Bratislava, and the European Energy Exchange.