Cancun Blog Series:Q&A 2: CCS under the CDM

Here's the second installment for our Cancun Blog Series.

We're keen on hearing your thoughts about our Q&A1: Cancun Outcomes & Impacts post, so please drop us a comment and we'll get back to you as soon as we can.

In this installment, we will be continuing our interview with Mark Bonner, Principal Manager – Policy, Regulatory and Legal of the Global CCS Institute and exploring CCS under the Clean Development Mechanism (CDM). We will also be featuring blog posts from guest bloggers external to the Institute. These include:

• Paul Zakkour of Carbon Counts,a consultancy specialised in international climate change policy; and
• Gøril Tjetland and Svend Soyland of The Bellona Foundation.

Q: How might we expect CCS under the CDM to be managed – could you give us some ideas?

It is important to remember that it is the Parties (ie. sovereign governments who have ratified the Kyoto Protocol) that authorise legal entities such as companies to participate in the CDM, with ultimate responsibility for complying with and meeting commitments under the United Nations Framework Convention on Climate Change (UNFCCC) resting with governments – not with the legal private entities. For this reason, host governments in developing countries need to have in place effective policy and regulatory frameworks and/or governance arrangements that are capable of supporting the deployment of CCS projects under CDM. In practice, many of the rules of CDM are given effect through domestic law, including:

• the content and application of regulatory assessments (ie. health, safety and environment - HSE);
• HSE regulatory approvals required to carry out the project activity (including licenses, operating permits, planning permits etc); and
• regulatory restrictions and/or conditions imposed on projects (including pollution controls; impacts on biodiversity; provisions to redress etc).

Less prescriptive CDM rules often embrace ‘best practice’ methodologies and approaches and/or review processes.

The CDM currently has a well established set of rules that govern the inclusion of projects in CDM, and this provides for the integrity of subsequent registration and issuance of tradable credits by the CDM Executive Board (CDM EB) – which in turn rewards the abatement associated with the projects. To every extent possible, and this is the purpose of SBSTA’s current exploration of a limited number of CCS specific issues, the sufficiency of the existing rules need to be tested, and careful consideration given for any need to impose additional rules for CCS projects.

Over the short to medium term, private and public partnerships will be at the core of financing, deploying and operating CCS projects – and so the CDM rules should aim to strike a balance between ensuring a sufficient amount of information is generated (by project proponents) on which to base considered decisions (by host countries and the CDM EB); while avoiding imposing overly burdensome requirements on CCS project proponents (and creating additional barriers to deployment). It is also important to keep in mind that a ‘fit for purpose’ approach to CCS projects is critical over the short to medium period, given the demonstration nature of many of the CCS projects currently in the planning stage; and the site specific nature of their storage solutions.

As an indication of how the CDM rules can cater for CCS projects without much need for modification, criteria already exists that provides for the accreditation of technical experts for the purposes of:

• project validation (ie. monitoring plans, risk and environmental assessments, measurement and accounting methodologies, etc);
• information verification (ie. emission reductions/CO₂ avoided); and
• certification (ie. consistency of project design to host country laws and for the purposes convincing the CDM EB for registration).

Of course, the measurement and monitoring methodologies employed in the projects need to secure CDM EB approval.

Q: One of the biggest criticisms of the notion of including CCS under the CDM is that the CDM is not functioning as best it could, and that CCS thrown under it might overburden it even more. What do you say to that?

The CDM is one of (if not) the first global environmental market mechanisms (established under Article 12 of the Kyoto Protocol, and commenced operations in 2006 – with a retrospective emission baseline back to 2000). It essentially provides for developed countries to invest in emission reduction projects that assist in creating sustainable development in developing countries. This in turn rewards project proponents with a tradable instrument (called a Certified Emission Reduction unit or CER) which they can either choose to sell – or use to legally acquit against their emission obligations.

According to the UNFCCC CDM website, some 2,800 CDM projects currently exist, 548 million tonnes of CO₂ equivalent (CO₂-e) abatement registered; and about 3 billion tonnes of CO₂-e abatement is expected over the period 2008–2012. I think the European Union’s Emissions Trading Scheme is currently valuing CDM offsets at about €12 per tonne, and so CDM is clearly making a difference when it comes to mobilising substantial amounts of financial support to local projects in developing countries.

In addition to mobilising billions of dollars for projects in developing countries, it has also established many service industries to support it (such as: engineering; construction; legal; accounting; verification and certification etc). Not only do these industries create additional value add (and a potential comparative advantage for providers), but they also establish localised capacity to implement projects. To my mind, both the existence of the CDM market and the supporting services continuously empower developing countries to contribute substantially to the global mitigation effort.

Is the CDM sufficient to deploy mitigation projects? The answer is yes for some (ie. abatement representing the ’lower hanging fruit’) and no in other cases (such as CCS), but it is a necessary and important source of funding. It also provides for internationally agreed institutional arrangements to support mitigation efforts and in turn, can offer national government’s some stewardship in regards to the design of their own policies and economic instruments.

Like all rules based schemes, the CDM is not perfect – its governance and administration (including procedural fairness) is often contested by a broad range of participants and stakeholders. Rules (however imperfect) are an essential element to an effectively functioning market, as they offer all participants the confidence to engage. I’ll simply conclude by observing that the UNFCCC Report (EB50, Annex 11) cites that there is no indication that CCS under CDM introduces any risk of “unbalancing” the carbon market. Indeed, recent analysis by the firm Carbon Counts judges that the CCS share of the CER pie in 2020 is expected to be only about 6-9 per cent – and concludes that in regards to CCS generated CERs, “concerns about carbon market effects are unfounded”.

Here ends the second installment of the Cancun Blog Series. We hope you enjoyed it! Please let us know what you think, and drop a comment below. We want to hear what you have to say!