Don’t worry Connie Hedegaard, I have an answer for your CDM problem

I went to a talk about the UNFCCC’s Copenhagen 2009 conference by Connie Hedegaard and Hilary Benn at the LSE last night (transcript). Connie is Hilary Benn’s Danish counterpart and has responsibility for organising the conference.

She was reassuringly dedicated to an ambitious global agreement. But there were points she raised that made it look like the negotiators have a tall order.

  • She did not seem entirely convinced that the EU climate and energy package could be completed in time for Europe to lead the negotiations. The UK is attempting to water down the package and Hilary Benn did not offer much reassurance on this.
  • While she felt cap and trade markets in Annex I countries were developing and offer the best available way to arrange carbon finance, she recognised that the CDM is not a good method of technology transfer and needs to be reformed. She did not seem to have any ideas, however, and 14 months seems like a very short length of time to get something in place.

I am fond of having random stabs at reformed CDM designs. Here’s my current scheme:

Cap and trade auction revenues are channelled into several privately managed technology transfer funds. Companies and non-profit entities in developing countries can apply to the funds for grants or cheap finance for projects that reduce emissions. The funds would be evaluated on their ratio of emission reductions to funds allocated, and they would be awarded more or less funds in the following year as a result.

Every country would have an emissions cap (i.e. would be allocated AAUs), with the global cap representing a safe limit. Linking between carbon markets in Annex I and Annex II countries would be limited or banned (to force internal reductions in the developed world), and the fund mechanism would reduce the burden of the reductions for the developing world.

This system makes the problem of additionality internal to the fund mechanism rather than a question of effectiveness in climate mitigation terms. It is also likely to allocate funds much more efficiently in the developing world. The CDM has squandered billions on cheap or ineffectual projects.

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