National policies and the CDM: Avoiding perverse incentives

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Journal of Energy in Southern Africa

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Energy Research Centre


University of Cape Town

The CDM is a project-based mechanism to promote flexibility in mitigation climate change, by promoting investment in mitigation projects in developing countries. There has been concern about potential perverse incentives for developing countries like South Africa not to adopt progressive national policies, fearing that CDM projects implementing such policy would no longer be additional. The CDM rules on additionality require that emissions are reduced ‘below those that would have occurred in the absence of the registered CDM project activity’. The paper shows that recent decisions by the CDM Executive Board make it clear that such perverse incentives will not be created. The paper suggests concrete interpretations of this guidance for two possible project types. Projects implementing national policies that promote zero- or low-carbon emission technologies (e.g. South Africa’s renewable energy target) can still go through the CDM process. Where there are local regulations, as for landfill gas, projects would not be ruled out entirely, but would receive credit for the difference between actual methane capture and that needed to meet local safety, health and environmental standards. The author concludes that projects implementing progressive energy policies are still eligible for CDM investment.