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A clean way to make money

by Sheila Mysorekar

In brief

Selling energy saving bulbs in rural Peru

Selling energy saving bulbs in rural Peru

The Clean Development Mechanism is a way to protect the environment and transfer money to developing countries. Standardised baselines could simplify this business. By Sheila Mysorekar

Protecting the environment must be a joint effort of all countries. In recent years, several ways have been explored to make this happen. One option is the Clean Development Mechanism (CDM). The CDM, as defined by the United Nations Framework Convention on Climate Change (UNFCCC), allows “a country with an emission-reduction or emission-limitation commitment under the Kyoto Protocol to implement an emission-reduction project in developing countries”. Such projects earn saleable certified emission reduction credits (CERs). Each CER is equivalent to one tonne of CO2.

The CDM has recently run into trouble because there is no follow-up agreement to the Kyoto Protocol, so the carbon reduction commitments made by some developed nations are being phased out. Nonetheless, some experts consider the CDM useful for both developed and developing countries. The CDM offers rich nations options for meeting emission reduction targets while disadvantaged countries benefit from the transfer of funds and technology.

Typical CDM projects involve installing solar panels for rural electrification projects, for example, or financing for efficient cooking stoves. Emission reductions are calculated by estimating what would have been emitted without the given project. To do so, baselines are necessary, and they have generally been determined on a project-by-project basis, which is a lengthy and expensive process. This approach has especially hampered CDM projects in least developed countries (LDCs), where projects tend to be small and bureaucratic procedures are often unaffordable.

A new study by the Wuppertal Institute for Climate, Environment and Energy and the private-sector company GFA Envest looks into the potential of using standardised baselines in LDCs. Unlike emerging markets, these countries have hardly benefited from the CDM in the past. Standardised baselines, however, would make it easier to calculate emission reductions and speed up project approval. The authors expect their approach to have several advantages in terms of efficiency and effectiveness.

Africa, for instance, is a continent highly affected by climate change. At the same time, the sub-Saharan countries tend to be poor and struggle to cope with the impacts. The authors point out that standardised baselines would facilitate more CDM projects in the countries concerned. However, developing such baselines will be costly, so upfront investment is needed.

Sheila Mysorekar