Post-Kyoto CDM Framework

For any effective post 2012 framework, it is the view of most contributors and indeed from the points discussed above that there is a need for a systemic overhaul of the current Kyoto framework (not only in terms of the regulatory framework and structure; complexities inherent in the CDM project cycle; lack of institutional capacity by Non Annex 1 participating States and methodology tests issues), but also in the orientation and direction of the different Parties and of the importance of environmental integrity to projects or programmes of CDM for credible possibility of attaining the set out goals of climate change mitigation and adaptation. It was the author’s view like many others that Copenhagen 2009 could have been an

opportunity to articulate proportionate measures to the urgency of climate change and more importantly draw the United States into a binding commitment due to euphoria focused on Obama’s election victory. But this was not the case. The progression of these expectations has however cumulated in the resolutions credited

112 CEPS policy brief 2008, “Climate Governance Post 2012, Options for EU Policy Making”, No.177, November 2008, Available for free downloading from the CEPS website (http://www.ceps.eu) � © CEPS 2008

113Bodansky, D., 2007a, Sectoral Approaches in a Post-2012 Climate Framework, Working Paper, Pew Center on Global Climate Change, Washington, DC.

60 to the Durban 2011 summit especially with regards the CCS integration in to the CDM framework.

The fundamentals of any post Kyoto period must include broadly speaking the following, Firstly, the involvement of all countries that are major emitters – i.e.

developed and developing countries alike - in the attainment of the commitments.¹¹⁴ Secondly, the utilisation of mechanisms and measures that will not only accentuate the need for ‘real’ and ‘verifiable’ reductions in the overall global emissions of GHG but will bring about a credible and transparent ways of achieving the reductions and are also workable within the definitions of international and national policy

frameworks. Finally, the use of policy instruments (domestic and international) and political will to achieve these crucial goals are essential.¹¹⁵ It is important to lay this foundation to preclude any sentiment that “a one sided solution” or “one size fits all” approach (that has characterise the present framework) would be a credible alternative to any post Kyoto regime.

In reforming the CDM framework, its set out objectives require the contribution of all parties under an equitable but multilateral framework,¹¹⁶ while upholding the principle of ‘Common but differentiated responsibility’ in designing the next emissions reduction framework [and] avoiding the isolationist approach in formulating policies¹¹⁷ in relations to other policies is a credible alternative to the current regulatory regime. It would make compliance and enforcement easy to articulate, achieve and measure from both a national and international stand point.

As suggested by all literature reviewed during this research, the importance of a reasonable integration of the developing countries’ policies and measures in the global carbon market and any future climate change regime was unanimous (suggested reading include Bossley, 2008; Bodansky 2007a & b; Lewis et al., 2007 Watson et al., 2005 inter alias) and in my view are incontrovertibly necessary to achieve the goal of averting the almost certain consequence of global warming due to anthropogenic activities.

114 Olmstead, S. N. & Stavins, R. N., 2006, An International Policy Architecture For The Post-Kyoto Era. American Economic Review, V. 96, N. 2, P. 35-38, 2006.

115 (Diniz, E. M., 2007 “Lessons from the Kyoto Protocol”, Ambiente & Sociedade Campinas v. X, n. 1, p. 27-38 , Jan.-Jun. 2007

116 Lewis, J &Diringer E. 2007, “Policy-Based Commitments in A Post 2012 Climate Framework” Prepared for the Pew Centre on Global Climate Change.

117Kuik, Cheng-Chwee (2008), The Essence of Hedging: Malaysia’s and Singapore’s Response to a Rising China, in: Contemporary Southeast Asia, 30, 2, 159-185.

61 1.8.1 Proposed Approaches for a post-Kyoto CDM

Framework

The entry of CDM into the Kyoto negotiations though late despite all the challenges has so far proved to be one of the most successful climate change mitigation strategy that incorporates all parties to the Protocol for achieving the goal of global GHG emissions reduction. The current framework that is based on an economy-wide emission target does not only have compliance and methodological issues but with it are potential for disparities in ability to bring different parties to efficiently

participate in the framework and the impact of it on the overall goal of individuals country’s national economic goals especially for the Non Annex 1 Parties.

Although pre Kyoto had tinkered with different approaches to CDM such as the

“sectoral-based CDM”,¹¹⁸ “policy-based CDM”,¹¹⁹ “programmatic CDM¹²⁰” and project-based CDM, the consensus was however in favour of the “project based”

mechanism. Recent events have shown the re-emergence of the other non-target based approaches. This section of the chapter will attempt to discuss the relevance of these different approaches in the post Kyoto regime and how they can be articulated within a post-2012 international and domestic regulatory framework to meet the overall expectations of the parties. Also, there will be discussion on elements of new market mechanisms that will possibly ease and facilitate the integration of the Non Annex 1 Parties into the global target based or market based framework as a steady bases for integrating CDM based CCS projects.

1.8.1.1 Policy-Based Approach

The fact that project-based approach has brought with it this level of success is in fact a clear indication that other mechanisms - if well worked and implemented - can create the needed impact also. The lessons learnt from project-based approach could be relevant in developing and stabilising other approaches within the new framework especially the above named approaches.

118Bodansky, D. 2007b, “International Sectoral Agreements in a post 2012 climate framework” prepared for Pew Centre on Global Climate Change.

119Supra note [Lewis et al., 2007]

120Michaelowa, A. 2008, CDM Post 2012: Practices, Possibilities, Politics”, Workshop Report Lund University Sweden, 28^th May 2008. And An Editorial in Financial Express, 07 July 2008 suggesting the use o programmatic CDM framework to me the post 2012 CDM environmental integrity challenges.

62 Policy-based approach as a component of the overall multilateral framework could be a means by which developing countries can contribute to the post-2012 CDM regulatory framework. Allowing for a bottom-up policy model provides the

opportunity for national policies to be developed to meet not only national objectives but integrated into the global goal framework. An insular view on developing

policies about climate change mitigation measures to particular or individual sectors of the economy has been nourished by the top-down approach of developing climate change policies and it has effectively isolated the developing countries from

contributing significantly to the overall reduction of emission through CDM.

CDM Policy-based framework should provide the needed freedom by States to draft their policies within the unique context of domestic socio-economic and political dynamics and constraints, allowing for the inherent evolutionary characteristics to play out without being deterred by externalities such as international demands and allowing developing countries to initial voluntarily commit and ultimately join the binding quantifiable emissions limits scheme.¹²¹

It is important at this point to note possible questions often arise about the structure of such a policy-based regime. For instance, what is the benchmark for the voluntary contribution and what policy actions can be translated into the next phase i.e. if regulated? These questions though appropriate but are outside the scope of this research. It is also however important to state that a well-structured climate policy-based model should promote a synergy between all policy elements of the

developing country within overriding objective being to develop a low carbon economy in both the medium and long term alongside economic, infrastructural and technological growth. Such policies have to be proactive and result orientated, must be interactive in terms of best practices with both domestic and international regimes, verifiable to external entities and finally provide a stronger impetus for OECD or Annex 1 countries to commit to stronger action towards ensuring

emissions reduction by structuring assistance directed at developing countries. It is the view of existing literature that policy-based commitments could be a major key element of balanced package of commitments across major developed and

developing countries.

121Supra note [Lewis et al., 2007]; Meng, K. (2007). CDM and the post-2012 framework, Washington, DC: Environmental Defense.

63 1.8.1.2 Sectoral-based Approach

One of the most discussed ways of dealing with the CDM riddle was to approach it from sector-by-sector bases. The sectoral based approach can be worked in different ways. The flexibility of allowing for both inter-governmental and intra-national (i.e.

governmental and non-governmental participation) partnership based on sectoral definition to attain the goal of emissions reduction is characteristic to sectoral based approach. Among other uniqueness is that it has the potential to make projects with large sustainable development gain feasibility within the CDM framework¹²² and it is a proven approach among other international regimes like the International trade and ILO regimes in which it has been used to successfully define and address

international agricultural and textile trade issues.¹²³ Bodansky (2007b) suggested 3 possible models within the inter-governmental partnership as

 Serial sectoral approach: Allow for different sectors in different countries to negotiate (simultaneously or sequentially) and agree on emissions reduction target based on different profiling models or

 Independent negotiation of sectoral agreement i.e. allowing for one or more sectors to work out their agreements independent of others or

 Integrating the sectoral agreement is the overall framework of emissions reduction.

Other authors such as Baron and Ellis (2006); Bosi and Ellis (2005); Samaniego and Figueres (2002); Schmidt et al. (2006)¹²⁴ have suggested that sectoral based

approach can take the form of Sectoral Credit Mechanism by allowing for states to establish baseline for sectors in their economy and grant emissions reductions credits relative to the set baseline.¹²⁵ Although not an entirely new concept, as early as the late 1960s there was the introduction of another form of sectoral based approach

122(ADAM Project Report 2008)

123Supra note [Bodansky, 2007b]

124See the Bibliography page for full list and titles

125 Baron and Ellis (2006), “Sectoral Crediting Mechanisms for Greenhouse Gas Mitigation:

Institutional and Operational Issues”. COM/ENV/EPOC/IEA/SLT(2006)4. OECD/IEA information paper; Bosi and Ellis (2005), Exploring Options for “Sectoral Crediting Mechanisms”, OECD, Paris; Samaniego and Figueres (2002), “A Sector-Based Clean Development Mechanism” In Baumert (2002), ch. 4; Schmidt et al. (2006), “Sector-Based Approach to the Post-2012 Climate Change Policy Architecture”. Center for Clean Air Policy, Washington, D.C.

64 referred to as the Unilateral Industry Initiative (UII).¹²⁶ This initiative succeeded in bringing corporations to agree to a voluntary measure to reduce GHG emissions within their sector. Most recent instance of this type of sectoral based approach is the World Business Council on Sustainable Development’s Cement Sustainability Initiative and similarly Aluminium initiative.¹²⁷ What is also clear in all of such initiatives and sectoral models according to the OECD report 2005 was that sectoral based approach as an option alone is counter-productive in terms of it lack of environmental benefits (i.e. it encourages emission leakage) and lacks economic efficiency by reducing options of mitigation and increasing the overall cost.¹²⁸ International policies based on this approach would be flawed and result in increased GHG emission. It is important that sectoral approach should be appropriated to ensure the desired effect across board. As noted by Stehr 2008, sectoral CDM must be redesigned to maximise legitimacy, effectiveness and efficiency of respective objective.¹²⁹ In line with the views stated above, it is also the author’s opinion that sectoral CDM has the potential of jump starting “Sustainable Development Mechanisms” if well integrated in to the implementation of CCS projects under CDM. The sectoral approach brings relevance to the case study country (discussed below) as the predominant sector in terms of economic revenue, vast amount of hydrocarbon deposit from its geological formations, and high amount of GHG emission from exploring companies, there is potential to implement CCS under a CDM framework.