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Private Sector Plays Important Role in Reviving Dying Carbon Economy

| Tuesday September 18th, 2012 | 0 Comments

Just yesterday I was having a discussion about how the carbon market is ‘dead.’ Today I read that, according to Business Green it is up to the private sector to safe the UN’s Clean Development Mechanism (CDM) from collapse. 

What is CDM? 
The CDM was developed after the Kyoto Protocol was formed. According to the official UN definition, it allows “a country with an emission-reduction or emission-limitation commitment under the Kyoto Protocol to implement an emission-reduction project in developing countries.” This basically means that industrialized nations can invest in emissions reduction in emerging economies. Such projects create saleable certified emission reduction (CER) credits, each equivalent to one tonne of CO2, which allows companies in richer countries to offset their emissions, thereby still meeting the requirements of the Kyoto Protocol.

Why is the CDM Suffering? 
There have always been critiques against CDM, mostly because it still encourages richer countries to keep polluting as long as they ‘offset’ their emissions somewhere else in the world. In spite of the short-comings of this system, it was one of the best ways to ensure a balance of carbon emissions on the path toward a theoretical zero-carbon economy. Due to an excess of saleable credits as well as doubts over the extension of the Kyoto Protocol, CDM has been suffering the past few years. In addition to this surplus there have been genuine concern about whether investment in projects in the third world are achieving the promised emissions reductions. All of these factors have resulted in free-fall in the carbon market which makes investment in CDM not economically viable.

Role of private sector in reviving CDM
An overview board appointed to examine this problem has declared that there needs to be more intervention from the private sector if CDM is to thrive. This high-level panel meeting, which concluded in Bangkok a few days ago, released a statement to this effect.

“Nations must, as a high priority, restore faith in global carbon markets generally and in the CDM specifically,” said panel chair, Valli Moosa. “Although the CDM has been the subject of extensive criticism, it has improved markedly in recent years and has helped combat climate change by mobilising the private sector through markets.”

The CDM covers more than 4,500 projects in 75 developing countries which covers renewable energy installations to smaller projects like smokeless stoves to public transportation. In addition to carbon emissions, the program has also helped towards alleviating poverty.

The private sector, therefore, does have valid reasons to continue to invest in CDM as there is a considerable payback for companies. The CDM is a voluntary offset market worth $576M and as there are many things that the private sector does voluntarily, CDM can continue to be one of them.

Image Credit: Wikimedia Commons


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