Executive Summary

This paper proposes a set of eligibility criteria and indicators for the appraisal and evaluation of CDM project proposals. It was prepared by a non-government organisation, HELIO International, through its Sustainable Energy Watch (SEW), jointly with a working group comprised of Climate Action Network (CAN) members. The proposed indicators have been developed with a view to progressing the debate surrounding the CDM and putting forward some practical suggestions to help build consensus among stakeholders in the appraisal of CDM projects.

Section 1 provides a summary of the CDM background, outlining its emergence from the FCCC and where the operational gaps exist. Section 2 sets out the proposed project eligibility criteria, such as appropriate technologies, baselines, supplementarity and measures of sustainable development. Section 3 lists the project crediting and financial additionality criteria, while Section 4 sets out a range of indicators for monitoring a project during its life cycle. An additional set of indicators for monitoring net emissions of greenhouse gases is listed in Section 5, with a graphic representation of the indicators.

It is the hope of the authors that the criteria and indicators recommended in this paper prove to be acceptable to Parties and contribute to the effectiveness of the CDM.

Introduction

Coinciding with the onset of the new millennium is the launch of the Clean Development Mechanism, or CDM - a controversial, complex and as yet undefined mechanism that has as its objective the global reduction of greenhouse gas (GHG) emissions. Should consensus be reached at the Sixth Conference of Parties (COP-6) to the Framework Convention on Climate Change (FCCC), and should approval of the CDM follow, optimistic projections are that US$24 to 37 billion could flow into low-income, non-Annex 1 countries over the next ten years. This unprecedented channel of investment, if well designed and managed, could support innovative projects contributing to the sustainable development of many countries, while reducing GHG emissions globally. The great interest and the enormous number of stakeholders involved in the CDM is therefore not surprising.

At the Third Conference of Parties (COP-3) to the FCCC held in Kyoto in November 1997 it was agreed that three flexibility mechanisms would be constructed in order to increase the number of methods available to Parties to reduce their carbon emissions. These mechanisms are: Joint Implementation (JI), Emissions Trading (ET) and the Clean Development Mechanism (CDM). They provide opportunities for countries to meet a portion of their GHG emissions commitments by implementing measures outside their national boundaries. Of the three mechanisms, the CDM attracts enormous interest because it constitutes a practical link between the countries that are bound by reduction commitments, and those that aren't, on the basis of 'common but differentiated responsibilities'.

Not only does the CDM provide an opportunity for the realisation of real and measurable carbon emission reductions; it also elevates sustainable development to the same level, making the mechanism distinct from (Activities Implemented Jointly (AIJ) and JI. These dual objectives are regarded as symbiotic, and one may not occur without the other.

Although the theory is sound, caution must be exercised in the design and implementation of the CDM. It must be recognised that a poorly constructed and badly managed CDM process could seriously undermine the new commitment targets of developed countries that are contained in the Kyoto Protocol. It could also handicap the ability of developing countries to fulfil their own future commitments. The elaboration of sustainable development plans within National Agenda 21 in potential host countries, as well as in investor countries, is therefore a first order prerequisite if the CDM is to benefit both categories.

With implementation scheduled for as early as the year 2000, details of how the Mechanism will work in practice remain undefined. This will be a pressing subject for discussion at COP-5 in Bonn.
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