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Reform of the InternationalCarbon Offset Market
Michael Wara
France-Stanford Center
March 23-24, 2009
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France-Stanford Center, March 23-24, 2009
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Reform of the Int. Offset Market
Political reality: we will use them
Experience to date: not good
Contain the damage: three reform proposals
Conclusions
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France-Stanford Center, March 23-24, 2009
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Political Reality
EU ETS Phase III
US state and regional initiatives
US-CAP proposal
Draft bills in US House and Senate
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France-Stanford Center, March 23-24, 2009
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The CDM Regulatory Process
Validation
Registration
Issuance
Use (Kyoto, EU ETS)
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France-Stanford Center, March 23-24, 2009
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CDM Pipeline to end 2008
Spectacular growth in promised reductions
Data: Unep Risø Centre
HFC-23 and N2O
CH4
CO2
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France-Stanford Center, March 23-24, 2009
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CDM Pipeline to end 2008
Tale of two project types
Data: Unep Risø Centre
Power Sector
CH4 Capture
IndustrialGases
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France-Stanford Center, March 23-24, 2009
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Promised ≠ delivered Changes in standards, administrative
delays
HFC-23 and N2O
CH4
CO2
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France-Stanford Center, March 23-24, 2009
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Very low-cost options dominate issued CERs
Big projects, low marginal costs dominate
Power Sector
CH4 Capture
IndustrialGases
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France-Stanford Center, March 23-24, 2009
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Additionality in practice: the Chinese Energy Sector
Data sources: National Development and Reform Commission;
International Gas Union; International Energy Agency; Jørgen
Fenhann, UNEP-Risø Centre.
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France-Stanford Center, March 23-24, 2009
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What’s next for CDM: Tata Mundra
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France-Stanford Center, March 23-24, 2009
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Reform proposal 1: Rational basis
Lack of transparency of decisions
Poor quality of decisions
Require EB to state reasons for its decisions
Require reasons to be justified by the record
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France-Stanford Center, March 23-24, 2009
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Reform proposal 2: Remove Verifier Conflicts
3rd Party verifiers have repeat interactions withproject
developers
Competitive verification market
Empower CDM EB to hire verifiers
Incorporate costs into project fees
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France-Stanford Center, March 23-24, 2009
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Reform proposal 3: Periodic review
Some project types problematic only inhindsight
Need to look at sectoral response to CDMincentives
Empower CDM to conduct periodic review ofoffset
methodologies
Allow for elimination of bad methodologies
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France-Stanford Center, March 23-24, 2009
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Conclusions
Use of offset systems at a large scale isprobably inevitable, at
least in US
Experience to date suggests that there will bemany “anyway”
credits issued
Practical administrative reforms can limit theextent of false
positive credits issued into themarkets while improving market
function
