CDM (Clean Development Mechanism) :: 2007.08.25 16:53

정래권 선생님 강의 후에 관심 갖게된 CDM/carbon trading/carbon credits.

이 market mechanism이 얼마나 flexible하게 운영될지 지켜봐야 할 것 같다.

IAEA- Act Locally, Trade Globally

from Wikipedia...

Clean Development Mechanism

The Clean Development Mechanism (CDM) is an arrangement under the Kyoto Protocol allowing industrialised countries with a greenhouse gas reduction commitment (called Annex 1 countries) to invest in projects that reduce emissions in developing countries as an alternative to more expensive emission reductions in their own countries. The most important factor of a carbon project is that it establishes that it would not have occurred without the additional incentive provided by emission reductions credits.

The CDM allows net global greenhouse gas emissions to be reduced at a much lower global cost by financing emissions reduction projects in developing countries where costs are lower than in industrialized countries. However, critics argue that by allowing "business as usual" projects some emission reductions under the CDM are false or exaggerated, and in early 2007 the CDM was accused of paying €4.6 billion for projects that would have cost only €100 million if funded by development agencies (see discussion below).

The CDM is supervised by the CDM Executive Board (CDM EB) and is under the guidance of the Conference of the Parties (COP/MOP) of the United Nations Framework Convention on Climate Change (UNFCCC).

Annex I and Annex II Countries, and Developing Countries

Signatories to the UNFCCC are split into three groups:

  • Annex I countries (industrialized countries)
  • Annex II countries (developed countries which pay for costs of developing countries)
  • Developing countries.

Annex I countries agree to reduce their emissions (particularly carbon dioxide) to target levels below their 1990 emissions levels. If they cannot do so, they must buy emission credits or invest in conservation. Annex II countries, that have to provide financical resources for the developing countries, are a sub-group of the annex I countries consisting of the OECD members, without these that were with transition economy in 1992.

Developing countries have no immediate restrictions under the UNFCCC. This serves three purposes:

  • Avoids restrictions on growth because pollution is strongly linked to industrial growth, and developing economies can potentially grow very fast.
  • It means that they cannot sell emissions credits to industrialized nations to permit those nations to over-pollute.
  • They get money and technologies from the developed countries in Annex II.

Developing countries may volunteer to become Annex I countries when they are sufficiently developed.

Developing countries are not expected to implement their commitments under the Convention unless developed countries supply enough funding and technology, and this has lower priority than economic and social development and dealing with poverty.


more on UNFCCC..

from FT...
Carbon trading key terms

Carbon credits: tradeable notional credits resulting from the reduction of greenhouse gases. Measured in tonnes of carbon dioxide

Carbon offset: the production or purchase of a carbon credit intended to cancel out the effect of the purchaser’s emissions

EUETS: the European Union emissions trading scheme, which began on January 1 2005. Its first phase ends on December 31 2007; the second runs from 2008-2012

EUA: EU allowance, a permit to emit one tonne of carbon under the EUETS

Kyoto protocol: international treaty, drawn up in 1997 and which came into effect in 2005. Required developed countries to reduce emissions by 5 per cent, compared with 1990 levels, by 2012. Administered by the secretariat of the UN Framework Convention on Climate Change.

CDM: clean development mechanism, a provision of the Kyoto protocol by which developed country governments may meet their emissions reduction targets by funding emissions reduction projects in developing countries

ITL: international transaction log, the registry system aimed at ensuring all carbon credits issued under Kyoto are valid

Additionality: principle that carbon credits should only be issued for projects that would not have happened without the financial incentive of carbon credits

CERs: certified emissions reductions, issued by the UN under the Kyoto protocol

VERs: verified (or voluntary) emissions reductions, sold on the voluntary market

Voluntary market: unregulated market for carbon credits, outside the Kyoto protocol and the EUETS

Voluntary carbon standard, gold standard: standards under which projects selling credits in the voluntary market can receive accreditation that they have met certain stringent criteria

Vintage: the year in which carbon credits were generated. It is possible to buy credits years in advance of when the emissions reductions will occur. Some companies will only buy credits generated in the same year as the emissions being offset