Wind farm in Africa (Image by: lollie pop)

The United Nations’ Clean Development Mechanism (CDM) adopted a novel project approach to countering or offsetting developed countries’ emissions.  The most visible and controversial component of the Kyoto Protocol has made large political and regional advances since its inception.

However, when it comes to global distribution of the projects that are actually generating carbon offsets, it falls short.  Nowhere has this been felt more, than on the African continent.  But why should this be the case when the CDM was designed to be a means to transfer technology, finances and development to the poorest and most vulnerable countries on the planet?

Reasoning a Failure?

The barriers of CDM expansion in Africa surround emission reduction potential, financing and institutional stability.

Africa’s contribution to global emissions is minimal; UN data estimate that Africa accounts for only 4% (1,500 million tonnes of CO₂ equivalent) of annual world emissions.  Stunningly, 75% of Africa’s emissions originate from just four countries (Algeria, Egypt, South Africa and Nigeria).

Consequently, the carbon mitigation potential in the remaining 49 countries is clearly small.  Per capita emissions in sub-Saharan Africa are the lowest in the world at 0.77 tCO₂(e).  Relatively speaking, the financial costs that accompany these potential mitigations are more expensive than anywhere else, so why would a project developer choose an African country to invest in when better and faster returns can be sought elsewhere?

Potential From Nothing

In spite of the obvious low attribution to Certified Emission Reduction (CER) volumes generated so far in CDM projects on the continent, there is a potential for substantial growth.

A study commissioned by the World Bank, detailed the possible emission reductions which could be actualised by a mechanism such as the CDM.

Key areas include: fuel shifting, improved agricultural processes and industrial energy efficiency schemes.  Importantly, the CDM can accommodate these reduction areas - with small-scale renewable schemes and process changes being effectively undertaken within the CDM.

As it stands, only 120 projects are hosted in Africa; of that, only 65 are in 20 sub-Saharan countries.  It has been estimated that up to 3,000 CDM projects can be hosted in Africa - there is a great deal of development left to be done.

One setback is that a country must have a Designated National Authority (DNA) before any CDM project can be contemplated.  This body is responsible for the regulation of CDM projects in their country.  Unfortunately for most sub-Saharan Africa, there are only 21 DNAs, meaning that many reduction opportunities are missed.

Overarching responsibility for tackling this dilemma ultimately lies with the CDM’s administrative body, the Executive Board (EB) and the UNFCCC.  Only recently has any real progress been made with respect to this.

Delivering the Mechanism

The difficulty is that the CDM has been poorly refined for the special considerations that African countries require.

What progress they made was acknowledged at the UNFCCC negotiations in Copenhagen in December 2009.  Regional distribution was only briefly discussed (mainly due to limitations of actual negotiating time) but it was agreed that the DNA registration requirements would be reduced in countries that have difficulty hosting projects.  The reforms are expected to come into force sometime in the second half of 2010.

A CDM concept that is expected to benefit Africa received little negotiating time also.  It is thought that the programmatic CDM (pCDM), or sometimes known as a programme of activities (PoA), could unlock the delivery potential of the CDM in Africa.

In an effort to reduce transaction costs and generating bigger revenues by facilitating larger economies of scale, the pCDM approach would gather a group of similar emission reduction schemes under the umbrella of one project.  Consequently, this could provide an opportunity to tackle small-scale project barriers.

The number of pCDM projects that have progressed is small, but there are some that have the opportunity to generate substantial emission savings in other developing countries.

The same opportunity exists in Africa.  The pCDM concept could resolve some challenges that currently bedevil the African CDM.  However, a large set of barriers still exist before the pCDM can really live up to expectations - including risks associated to the lack of administrative clarity of the pCDM, high upfront costs and lack of successful experience implementing these unique schemes.

So Africa’s CDM potential categorically exists, but toil is required before it can compete with the emission reductions that are possible in the cheaper and more accessible countries such as Brazil, India or China.   Once unlocked though, the CDM could evolve into the flexible mechanism that was anticipated from the very beginning.

(Image by: bslmmrs)

Founded in 1919, Société Générale de Surveillance, commonly known as SGS, are now potentially the world leading Designated Operational Entity (DOE) working within the remit of the United Nation’s Clean Development Mechanism (CDM).

But did they become so well established through raw business acumen, taking the ‘first mover’ advantage in a fledgling industry, or being at the right place at the right time with the right connections?

Experience Always Helps

SGS were fortunate to be in a position to possess all of the above.

The responsibilities of the DOEs are extensive: verifying the emission reductions of projects and ultimately ensuring that this verification leads to the all-important Certified Emissions Reduction (CER) issuance.

In many cases, CER issuance will be the principal income stream during a project’s lifetime, so the choice of DOE is an important one.  Historically however, this decision has been somewhat restricted, with the market taking on a distinct oligopolistic structure.

The most recent CDM performance data, supplied from the UNEP Risø centre, reveals that 93% of issued CERs came from five DOEs - from over 365 million CERs in total since 2005.  Interestingly, and rather poignantly, 49% of all issuances were verified by SGS, with the next largest holding only 23%.

The dominant share that SGS accounts for in terms of issuance volume can be partially explained by the fact that it holds most of the large industrial gas projects in the CDM as clients.  These sectors deliver around 75% of the total CER volume, and do so with relative frequency, i.e. once every 2-3 months.

Delving further into the CDM pipeline shows that SGS has projects operating in more countries than any other DOE.  Importantly, these are predominantly projects located in China and India, the two most productive locations in the CDM.

In the relatively short CDM lifetime, SGS picked up a wealth of experience in the right areas: sectorally and geographically.  It was a primary business aim to quickly establish themselves as the DOE of choice for any project in any location.  SGS were performing well and leaving many in their wake.

Does Experience Always = Best?

In September 2009 however, the legitimacy of the CDM suffered a severe shock following the CDM Executive Board’s decision to suspend SGS for three months, after it was unable to prove its staff had adhered to inspection rules or that they were qualified to do so in the first place.

During this time, SGS was not permitted to upload any further project reports to the UNFCCC website, or submit any further requests for issuances.  Despite this, it was only until 12 January 2010, after the suspension had finished, that issuances from SGS-verified projects ceased; such was the volume of their future issuance pipeline.

But this was not the first time that a large project auditor has been found failing to follow Executive Board procedures.  SGS was the second such company to be suspended.  Norwegian-based Det Norske Veritas (DNV) was found wanting during a spot check in November 2008 for comparable reasons as the above, and was similarly suspended for approximately three months also.

With a reputation comes a pressure to sustain business demand.  During this suspension, a ‘gentlemen’s’ agreement was installed to help prevent other DOEs from poaching clients from DNV.

It is credible to assume that this approach was also adopted during the suspension of SGS, much to the relief of the company shareholders.  Any delay in CER issuances as a result, particularly involving large volumes, would likely test the patience of sizeable project owners and their clients, who may not be as forgiving should it happen again.

As such, critics were quick to conclude that the suspension only further highlights the inadequacies of the CDM, and that such actions do nothing to allay any fears that the CDM is a risky venture.  After all, project proponents already have many risks to deal with that span political, regulatory and eligibility boundaries.

Conversely, supporters of the flexible mechanisms suggest that these suspensions emphasize that the processes installed are working and that the credibility of the CDM is upheld because of it.  Contracting is a required part of the project process and goes some of the way to safeguard CER buyers and in some certain circumstances, sellers.

In any case, until competition in the DOE market begins to show signs of improvement, it appears that SGS may yet hold onto their place as the most experienced of the CDM verifiers.  And with project developers holding onto their mantra of ‘experience experience experience’, who can blame them?

Author: Natalie Antonowicz

CCS Plant in Germany (Image by: Vattenfall)

Saudi Arabia, and other oil exporters such as Norway have been negotiating for the inclusion of carbon capture and storage (CCS) as a means by which developed countries can offset their emissions through the Clean Development Mechanism.

Carbon capture and storage refers to the method by which carbon emissions are collected at the point of emission - or ‘at the pipe’ - and sequestered underground or in the seabed. CCS may be used for industrial processes such as power generation and the extraction and refinement of fossil fuels. This is not a means of reducing the total amount of emissions generated, but a means of preventing emissions from entering the atmosphere.

Norway’s Deputy Oil Minister Liv Monica Stubholt has been urging states to support her country, Saudi Arabia, and OPEC in pressing for CCS to be included in the CDM. The International Emissions Trading Association supports the states, and feels that CCS’ exclusion from the CDM is the result of “seemingly subjective and politicised reasons, rather than those drawn from any objective analysis”.

Despite the efforts of Norway and Saudi Arabia, it is almost impossible that the Copenhagen Conference will result in an amendment to the CDM which would allow CCS projects to qualify for emissions reduction under the mechanism.

During the Copenhagen Conference, the Subsidiary Body for Scientific and Technological Advances (SBSTA), which is one of two permanent bodies to the Conference of Parties (COP) formally pushed its decision regarding whether CCS will be incorporated into the CDM until either the 2010 conference in Mexico, or the 2011 conference in South Africa.

The Subsidiary Body for Scientific and Technological Advances is not seriously considering Saudi Arabia and Norway’s proposals due to concern registered by other states and stakeholders. The body’s  recent report cites concerns about “the long-term liability for the storage site, including liability for any seepage”.

Although incorporating CCS into the CDM was among the major negotiating goals of Middle Eastern and North Sea states, the SBSTA’s deferral of the issue suggests that it is not under serious consideration by the major organs of the COP. Additionally, the issue has been proposed at previous Conferences, such as COP14 in Poznan, Poland, where it was not considered by the Body.

Debate among environmentalists about CCS also hinders the chances of success for Saudi Arabia and Norway’s proposal. Many stakeholders argue that it is less expensive to develop renewable energy technologies than it is to develop CCS technologies. Additionally, CCS has not yet been deployed on a commercial scale, and remains a largely experimental technology.

Opposition to the inclusion of CCS into the CDM by states such as Brazil, and consultancies such as Point Carbon has not wavered during last week’s negotiations. Brazil has argued that delegating funding to CCS projects may reduce available monies for that state’s efforts at renewable energy deployment and forest protection. Brazil’s rainforests serve as a major carbon sink for the world’s emissions.

Ultimately, despite its rejection as an instrument of the Clean Development Mechanism, carbon capture and storage is gaining global popularity. The European Union plans to invest EUR 1 billion into six demonstration projects, and the United States Department of Energy has pledged almost USD 1 billion for three demonstration projects. Private firms have also been investing in CCS. This indicates that as more stakeholders become involved in the issue, the incorporation of CCS into the CDM may indeed be strongly considered at future COPs, however, it is virtually impossible that Saudi Arabia and Norway’s efforts will lead to any serious consideration of the issue at COP15, due to opposition by states and civil society, and a lack of consideration by international bodies. According to Mari Luomi of the Finish Institute of International Affairs, the proposal “is not likely to move anywhere” at COP15.