In Cancun in 2010 and in Durban in 2011, Parties asked for increased standardisation of CDM crediting rules (called methodologies) that are used for CDM projects, in an effort to simplify and streamline the CDM.
Such simplifications reduce costs and risks for project developers. Yet standardisation also runs the risk of over-crediting and allowing many projects into the CDM that are simply business-as-usual (so called, ‘free-riders’).
The CDM Executive Board approved a framework that outlines simple rules on how to develop standardisations to ensure equal treatment of cases and that explains the logic of the methodological concepts. In principle, this is a good idea but the current framework is simplistic and not sufficiently comprehensive. The risk is that it could lead to standardisations that allow large numbers of artificial credits into the CDM system. The UN’s own Methodology Panel and external stakeholders have raised a series of concerns about the applicability of the framework.
What is Being Standardised?
|Standardisation for baseline setting
The baseline is used to calculate the emissions that occurred before/without the project. Baselines can be standardised, e.g. for CDM coal projects the baseline is based on the efficiency of the most efficient 15% coal power plants in that country. Such approaches determine efficiencies or emission for a whole sector or technology not project-by-project.
|Standardisation for additionality testing
Positive lists: lists of technologies that are automatically considered additional.
Performance benchmark: e.g. the most efficient 15% of a technology type is automatically considered additional.
|Free riders versus lost opportunity ‘Free riders’ are projects that can generate credits despite the fact that they are non-additional.‘Lost opportunity’ are projects that would be additional but do not qualify under a standardised approach.Both should be avoided, yet free riders are more problematic since they undermine climate goals.|
Risks and Benefits of Standardisation
In Cancun the Parties to the Kyoto Protocol asked for increased standardisation in the CDM, arguing that it:
“could reduce transaction costs, enhance transparency, objectivity and predictability, facilitate access to the clean development mechanism, particularly with regard to underrepresented project types and regions, and scale up the abatement of greenhouse gas emissions, while ensuring environmental integrity.” The table below summarises how well these goals can be achieved. On the whole, standardisation can be an effective policy tool for some sectors if designed carefully, however it isn’t a miracle solution.
- Transaction costs are lowered for project developers but developingstandardised methodologies requires large amounts of reliableindustry data and in-depth analysis. This is expensive and it is unclear who can and should bear the risks and costs of it.
- Objectivity is only increased at the stage of project evaluation.But standardised approaches still require a range of normative choices which are not objective but political in nature. DNAs are to develop such standardised approaches but in most cases they lack the capacity and also have a vested interest in developing approaches that are favourable for their country. The CDM Watch study on grid emissions factors highlights the resulting risks.
- Predictability for project developers is increased because the application of a standardised baseline is straightforward.
- Facilitating access to underrepresented project types and regions may be possible in some cases but are not a given, because underrepresented regions usually lack data and capacity to develop standardised approaches.
- Scale up the abatement of greenhouse gas emissions,while ensuring environmental integrity. The jury on this is out. There is no evidence that standardised approaches lead to fewer free-riders than project-based approaches.