First SDM Joint Coordination Workshop

Initial Plenary: Durban Outcomes

Henry Derwent

Bonn, 24February 2012

A reminder of how the international carbon market was

supposed to work

K3

K2K1

NA1

Kyoto Land Non-Annex1 (Dev’g Countries)

CDM Projects

Trading SchemebetweenInstallationsetc

AirlandAirlandJIProjects

The way the global carbon market is going

CDM System and

developments

CDM System and

developments

NationalSector orCity

Country 2

Trading Scheme

Country 1

GlobalSector

National/local offset standards

(EPA, California)

National/local offset standards

(EPA, California)

Bilateral systems or

deals

Bilateral systems or

dealsInternational

offset standards(VCS, CCX,

CCBA)

International offset

standards(VCS, CCX,

CCBA)

Domestic Projects

Offset Projects 2012: a Toxic Mixture of objections

• Purchasing indulgences: corporates or individuals• « Anyway » tonnes: Can’t trust foreigners• « Anyway » tonnes: Can’t trust baselines• Contaminated currency (domestic and linking)• Allows putting-off domestic investment • The ghosts of low-hanging fruit• International negotiations: « Supply only » days are over• EUETS over-supply• Objections in principle to some meths• Integrity of land-use meths?• Emerging trading schemes not taking someone else’s rejects« Everybody knows the CDM doesn’t work»« The CDM is evil »

Primary CDM picture looks very bad

• CDM activity declined because:– reduced compliance needs due to slow

economic recovery– uncertainty re: post-2012 rules– less origination activity as buyers seek

predictable credits and fewer projects– competition with AAUs and secondary CERs– Lower demand from EUETS

Durban’s improvements not enough to change this

CDM value(US$ billion

-12%

-59%

-46%

Durban’s Improvements to the Mechanisms

• Doubt about continuation of CDM (and JI?) removed• Materiality regime agreed• Pointers in the right direction on: significant deficiences,

simplification, co-benefits, additionality, first of a kind, faster processing of methodologies, consequences of methodologies being put on hold, standardised baselines, suppressed demand, digitisation, reduced waiting times, support for underrepresented countries, loan scheme, new DOEs

• Better understanding for the users’ experience, better norms of communication, and the rule of law

• CCS• Appeals mechanism not agreed• But EU-ETS close-down (impacts on EU MS too) now

beginning to be understood

Focus for this Workshop

• Large number of issues on the table • Golden thread: effective functioning of the market• Kyoto Project Mechanisms under threat like never

before• Participants leaving while need is rising• Going forward, little compelling reason for private

sector to stay interested• A system that works is the best defence

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