| CLIMATE |
4. Indicators for monitoring during project cycle
The eligibility criteria for potential CDM projects can be defined in a reasonably objective way, as was discussed in Section 3. However, the appraisal of their contribution to sustainable development is much more controversial. Both investors and host countries will need a consistent operational definition of sustainability that provides an instrument by which the sustainability of a given project can be quantified at any stage in the project cycle.
An effort to identify quantitative indicators of sustainability is crucial to allow for the ranking of available project options that meet the eligibility criteria. These indicators may also be useful after the feasibility study, during post-project evaluation. A standardised process is required that includes host country Parties in project appraisal, with particular reference to sustainable development.
Besides the mitigation of GHG emissions, CDM projects will typically involve other environmental impacts, positive or negative, or will affect sustainable development at local, regional, and national levels. Effects may include:
Some have argued that externalities should be addressed either in the crediting ratio of the CDM projects or by using appropriate discounting techniques.22 Taking intangible impacts into account may require still other approaches.23
Ideally, win-win options should be pursued bearing in mind all four pillars of sustainable development - economic, social, environmental and technological. However, a delicate situation arises when a proposed CDM project involves trade-offs between global benefits and negative impacts at local, regional or national levels.
The indicators proposed below should always reflect positive net values in
the case of social and environmental sustainability. In the case of economic
and technological sustainability, negative impacts may be compensated for by
the foreign investors through the transfer of financial resources and technological
skills.
4.1 Indicators of net change from baseline
The contribution of CDM projects to increasing the sustainability of global and national development must be measured against the expected results at the project level, which constitutes the reference case or the baseline.
All these indicators are calculated in comparison with the baseline(s) for the entire cycle of the CDM project. This means that the time horizon is determined by the technical lifetime of the projects. The net changes (positive and negative impacts) between the CDM project and the baseline(s) are estimated in each case. The results can thus be expressed as percentile changes compared to the baseline(s). The value of the indicators will be positive in the case of increased development sustainability as a result of the CDM project. Negative values of the indicators will represent losses of sustainability in the national development of the recipient country.
It would be meaningless to define business-as-usual baselines as static in low-income countries in the process of economic development when development is, by definition, a dynamic process. The time frame for the crediting of CDM project proposals can span several decades. Allowing an incentive for unsustainable development defies the potential benefits offered by the CDM for technological "leapfrogging".
If a future, graphically depicted by a 'flat line', is unthinkable for developing countries, what could be an acceptable baseline? Linear growth at the same pace as in the past? Or exponential growth adjusted according to the extrapolation of past trends? A mimetic path of development trajectories followed by industrialised countries in the past, using their different stages as milestones? Or employing official governmental projections (usually optimistic, by definition)?
While there is no single satisfactory answer to these questions, it is nevertheless
clear that baselines will have to be updated periodically.24
4.2 Sustainable development indicators
A desirable approach to coping with this unavoidable uncertainty resides in the definition of multiple baselines using at least two well-contrasted reference cases. Employing this approach, a range of values will result for each indicator, instead of a single value.
This will allow for a sensitivity analysis of results with respect to different baseline assumptions. This sensitivity analysis is very often crucial, given the high uncertainty levels associated with the wide spectrum of possible futures open to developing countries. In many cases, the impact of different baseline assumptions is much larger than the effects of the mitigation projects themselves.25
The proposed indicators are grouped below according to the four pillars of
sustainable development - namely environmental, social, economic and technological
sustainability.
4.2.1 Environmental sustainability
Indicator 1 - Contribution to the mitigation of Global Climate Change
Global environmental benefits will be measured by the net reduction of GHG emissions measured in CO2 equivalent according to the IPCC GWP for a one hundred-year horizon.
100% = Total avoidance of the GHG emissions predicted.
Indicator 2 - Contribution to local environmental sustainability
Local environmental impacts will be assessed by the percentage change in the emissions of the most significant local pollutant (oxides of sulphur, nitrogen, carbon and other atmospheric wastes; radioactive waste, VOC, DBO, DQO or any solid or liquid waste). A weighted average percentage change may be used when more than one pollutant is considered to be relevant.
+100% = Total avoidance of emissions of the local pollutant.
-100% = Emissions of the local pollutant are doubled.
Indicator 3 - Contribution to net employment generation
Net employment generation will be taken as an indicator of social sustainability, measured by the number of additional jobs created by the CDM project in comparison with the baseline.
Vector: 0% = No change in employment level compared with baseline.
+100% = Doubled number of jobs.
-100% = Elimination of all jobs predicted in the baseline.
This indicator is problematic in that it doesn't register a qualitative value for employment, such as whether the resultant jobs are highly or poorly qualified, temporary or permanent, secure or 'flexible'. Figures are also subject to inflation depending on whether direct and indirect jobs are counted.
Indicator 4 - Contribution to the sustainability of the balance of payments
Net foreign currency savings may result through a reduction of, for example,
fossil fuel imports as a result of CDM projects. Any impact this has on
the balance of payments of the recipient country may be compared with
the baseline.
Vector: 0% = No change in foreign currency expenditure compared with baseline.
+100% = Total avoidance of foreign currency expenditures.
-100% = Doubled net foreign currency expenditures.
A major difficulty here is that estimates of future prices of imported goods and services replaced by the project can be quite uncertain (e.g. international oil prices).
Indicator 5 - Contribution to macroeconomic Sustainability.
The alleviation of the burden on public savings will be measured by the reduction of direct government (national, provincial and local) investments (including budgets of state enterprises) made possible by the foreign private investment in the CDM project in comparison with the baseline.
Vector: 0% = No change in public investments compared to the baseline.
+100% = Total avoidance of public investments.
-100% = Doubled public investments compared to baseline.
The challenge here is to calculate the saving of public financial resources net of subsidies and to ascertain the additionality of the foreign private investment.
Indicator 6 - Cost Effectiveness.
Cost reductions implied by the CDM project in comparison with the baseline will measure the contribution to increased microeconomic sustainability. The value of this indicator will only be positive in the case of "win-win" ("no-regrets") projects.
Vector: 0% = No change in costs compared to the baseline.
+100% = Total avoidance of costs compared to the baseline.
-100% = Doubled costs compared to baseline.
Accounting for full project life-cycle costs, including education, training,
information dissemination, monitoring, verification and other transaction
costs may be a huge task. This analysis strongly benefits from the contrast
and comparison of two separate project performances, two time frameworks
and two discount rates in order to check the sensitivity of the results
to these key assumptions.
-100% = Doubled foreign currency expenditures with technology.
In both cases, CDM projects will contribute to a more sustainable use of natural resources.
+100% = Avoidance of all non-renewable natural resources.
-100% = Doubled use of non-renewable natural resources.