Chapter 3 - Learning from the CDM

Summary

The CDM is indisputably the most successful brand name emerging from the climate change agenda – the flagship of the Kyoto Protocol. Although the previous chapter underlined the difference between NAMAs and the CDM, the two ultimately aim at the same goal: the investment in lower emission alternatives. The CDM has produced a wealth of experience and brought about a much more thorough understanding of what works and what does not when considering the scope and design of NAMAs. First and foremost, the CDM has produced a truly global awareness of the climate change problem and the kinds of actions needed to meet the challenge. The goal of the NAMA is to now bring it to the next level.

The first commitment period of the Kyoto Protocol has ended, and while an extension of the Kyoto architecture was agreed upon at COP18 in Doha, the global climate regime, as we know it, is changing. The CDM is losing its clout and ‘new market mechanisms’ are urgently sought after. However, before rushing into new approaches to market definition, it is important to look back on the fading CDM, and consider whether its time has come to an end. What would be a reasonable level of activity under the mechanism? Why does the old approach no longer work?

There are many reasons the current carbon market has not worked according to expectation, but that speaks more to the expectations and the ability of policymakers to design a mechanism that responds to real, and in the case of CDMs very complex, market drivers and less to the functioning of the market. With the exception of the American emissions trading program for sulphur dioxide emissions, initiated with The U.S. Clean Air Act Amendments of 1990, there are very few examples of markets trading in externalities. Moreover, the sulphur market is narrow in scope and geography, and benefits from existing in a single judicial system. In the CDM the immense complexities arising from pooling all types of activities and all possible investment drivers, investment climates and national judicial systems into one all-encompassing global market were little understood at the outset – and 10 years later arguably remain little understood.