Enlisting Carbondioxide Capture and Storage as a Clean Development Mechanism Project: Legal and Regulatory Issues Considered

Purpose – Since the registration of the first clean development mechanism (CDM) project in 2004, the CDM has seen a dynamic expansion: the CDM pipeline currently comprises 6,725 projects generating 2.73 billion certified emission reductions (CERs) up to 2012. These CERs result in a substantial financial flow from Annex I to Non-Annex I countries. But CDM projects also result in investments in low carbon technologies, a substantial share of which is focused on the energy sector. The total installed capacity of all CDM projects amounts to 288,944 MW. However, the CDM is not widely taken up in Africa. This holds true for Africa's share in the CDM project pipeline (2.62 per cent), for Africa's share in CERs generated up to 2012 (3.58 per cent) and for the normalized CERs per capita, per country. Two hypothesizes are commonly discussed: first, the continent features low per capita emissions and low abatement potentials. Second, African countries may be hampered by weak institutional frameworks. This article reviews both hypotheses and presents new empirical data. The paper aims to discuss these issues. Design/methodology/approach – Investigating the greenhouse gas (GHS) abatement potential of 16 energy-related sectors for 11 selected least developed countries in sub-Saharan Africa shows a total theoretical CDM potential of 128.6 million CERs per year. Analyzing investment indicators confirms that most countries are impeded by below average investment conditions. Findings – It is concluded that Africa offers a considerable range of substantial abatement potentials. However, the weak institutional framework is limiting the uptake of the CDM in Africa. This is underpinned by an analysis which shows if a CDM sector has high investment cost, Africa will have a low share in the sector. If the sector has low investment needs per CER, Africa's share in the CDM sector will be bigger. Investment needs and Africa's share in the pipeline feature a negative correlation. Research limitations/implications – Supporting CDM development in Africa should not be constraint to technical assistance. It will be crucial to develop an integrated financing approach, comprising the CDM as a co-financing mechanism, to overcome the institutional challenges. Originality/value – Until today, there are few empirical studies that use concrete criteria and indicators to show why the CDM is underrepresented in Africa. The work presented here contributes to filling this gap.

This paper explores the existing trading mechanisms for Certified Emission Reductions (CERs), a tradable commodity generated under Clean Development Mechanisms (CDM) of the Kyoto Protocol and proposes an electronic trading system to improve the trading efficiency and the liquidity of the commodity in Sri Lanka. Currently, thirty-five CDM projects are under way in Sri Lanka and most of these projects are power generation plants based on renewable energy sources. Even though most of these projects are financially viable, they would not have been implemented in the absence of additional financial benefits generated by selling CERs due to various reasons including long pay back period, high initial cash outflows and other uncertainties attributed to this industrial sector. These private companies are finding it difficult to attract funding for CERs at a reasonable price compared to market value of substitute products. The existing negotiation process is lengthy and complex and there are many other deviations from perfect market conditions applicable to these trading mechanisms. Due to these reasons, the liquidity of CERs is very low and there is very high price volatility. The average price obtained by local CDM projects for CERs is considerably less than the current market price of substitute carbon products. There are several well-established carbon emission markets in the USA and Europe that facilitates trading of these various different carbon emission products but such a system is not available for trading of CERs in Sri Lanka. Due to the low liquidity of CERs (current price per tonne of CER around 4-8 US$) and many other reasons, only a very small fraction of the potential CDM capacity in Sri Lanka is considered for actual implementation up to now. To avoid these problems and to obtain maximum possible financial benefits from the Kyoto Protocol, an electronic trading system is proposed in this paper to facilitate trading of CERs.

China is the second largest emitter of greenhouse gases (GHG) in the world, with potentially about two thirds of total Certified Emission Reductions (CERs) for Asia on the world carbon market (Gruetter, 2002). Since 68% of its primary energy is from coal, China's average energy intensity is 7.5 times higher than the EU and 4.3 times higher than the US (EU, 2003). Therefore, introducing advanced clean technologies and management to China represents opportunities for Annex I countries to obtain low-cost CERs through CDM projects, and access to one of the largest potential energy conservation markets in the world. CDM can provide a win-win solution for both China and Annex I countries, and the Chinese government considers that the introduction of CDM projects can bring advanced energy technologies and foreign investment to China, thereby helping China's sustainable economy and generating CERs. As energy efficiency is generally low and carbon intensity is high in both China's energy supply and demand sectors, numerous options exist for cost-effective energy conservation and GHG mitigation with CDM. This paper reviews current Chinese policies and administrative and institutional settings for CDM cooperation, and discusses existing policy, institutional and other barriers in the energy market by drawing on observations and experience from previous initiatives such as Cleaner Production and energy efficiency. Some options to remove these barriers are addressed. In order to make CDM projects feasible, China's government needs to promote awareness, streamline administrative systems, and be more active in building a competitive edge in the world carbon market.

The clean development mechanism (CDM) of the Kyoto Protocol is a financial incentive intended to make economically marginal greenhouse gas (GHG) prevention projects more feasible. Carbon dioxide capture and sequestration (CCS) is a possi-ble GHG mitigating strategy. The Intergovernmental Panel on Climate Change (IPCC) defines a CCS project as a process consisting of three phases: the separation of carbon dioxide from industrial and energy-related sources; transportation of the carbon dioxide to a storage location; and long-term isola-tion of the carbon dioxide from the atmosphere. This paper focuses on prospects of CCS as CDM projects in general and in the context of Southern Africa. Currently there is no evidence of a long term proven track record of integrated CCS systems; only three industrial scale CCS projects exist global-ly. Nevertheless, new concepts have been proposed for CCS CDM projects such as long-term liability and certified emission reduction (CER) cancellation. However, these concepts are not in the current CDM framework at present. It is thus difficult to prove CCS as an eligible CDM project without first addressing possible expansion and shortfalls of the current CDM structure. More research is also required to quantify the trade offs presented between mitigating carbon dioxide from the atmos-phere at the possible detriment of the areas of stor-age in the Southern Africa context. Only then may CCS projects be deemed more viable in the CDM context. Finally, although the potential for CCS in South Africa has been noted due to major point sources, the cost of capture and storage is a major obstacle; matching point sources and geological storage options is problematic for South Africa and neighbouring countries due to large transport dis-tances. The regulatory risks associated with CCS are further deterrents for the implementation of CCS CDM projects in Southern Africa in the near future.

The relationships between CDM project characteristics and CER market prices

Certified emission reductions (CERs) from Clean Development Mechanism (CDM) projects have traditionally served as an indirect link between cap and trade systems around the world. However, since 2010, import restrictions have increased. Reasons for import limitations include the supplementarity principle, genuine concerns about the environmental integrity of CERs and social benefits of CDM projects, pressure from domestic emissions mitigation industries, concerns about competition in the industries in which reductions take place, as well as the attempt to pressure advanced developing countries to accept national emissions commitments under a future international climate policy regime. It is shown that import limitations lead to a decrease in CER prices and a race to generate CERs as quickly as possible. Such effects are visible in the CDM market after the EU announced its import limitations. The exclusion of CERs from specific project types will distort the CDM supply curve and increase the CER price unless the marginal abatement costs of the excluded project type are above the CER world market price. Similarly, exclusion of CERs from specific host countries will increase the price. Substantial differences are found in CER access to national carbon markets around the world.Policy relevanceCDM regulators could try to improve access of CERs to cap and trade schemes through improvements to additionality testing, standardizing baseline and monitoring methodologies and stakeholder consultation. However, regulators should be aware that standardization is no panacea, and controversies may resurface if standardized additionality determination (e.g. through benchmarks or positive lists) are applied for a certain period and found to be problematic. However, domestic policy concerns such as an unwillingness to send money abroad to buy credits, an inability to control market prices, and competitiveness impacts cannot be resolved by CDM reforms. If, despite such reforms of the CDM, blatant protectionism continues, a challenge before the World Trade Organisation (WTO) could be launched to stop discrimination of service exports from specific countries.

Clean development mechanism projects and portfolio risks

The discussion about Clean Development Mechanism (CDM) Projects has its roots in global warming and its consequences. CDM projects enable developed countries to offset the pollution generated by the acquisition of Certified Emission Reductions (CER), concerning the reduction of Greenhouse Gases (GHG) emissions in developing countries. The article discusses the CDM in a comprehensive manner, based on the opinion of experts, and investigates the future of this market from 2012, the post-Kyoto period. The main results show that the CDM follows the principles of Sustainable Development, focusing on the climate changes and the profitability of projects. It shows that Brazil has real possibilities to act in the CER market which is expected to consolidate in the post-Kyoto. Controversial issues as the future of post-Kyoto, nuclear power and especially the conservation of forests, through the generation of CER, remain undefined.

PTTEP Siam Limited (PTTEPS), a subsidiary of PTT Exploration and Production Public Company Limited (PTTEP), has pioneered a Clean Development Mechanism (CDM) project that takes aim at recovering and then using associated gas from the oil wells of Thailand’s Sao Thian-A field. Situated in the S1 Concession area in Sukhothai Province, the Sao Thian-A field has produced approximately 1.5 MMscfd of associated gas and 1,900 BPD of crude oil. Without a CDM project, this associated gas, comprised primarily of methane with lesser amounts of other energy rich hydrocarbons, would have simply been continued to have been flared and more greenhouse gases would have been released into the atmosphere. At its core, the CDM project involved the installation of a gas treatment system to filter out hydrocarbon droplets from the associated gas prior to its internal use and sale to external facility. The CDM Project has indeed helped the whole facility become more economically viable for further investment in similar such additional CDM units. The CDM project was approved by the Designated National Authority of Thailand in December 2010. Key benefits of applying CDM to the overall Project included reduction of GHG emissions, which in turn, increased the global energy efficiency of the oil field; the reduction of non-renewable energy use; and the encouragement of best practice of associated oil management among oil and gas operators in Thailand. In addition to revenue gain from carbon emission reduction trading, this Project has fulfilled score-based criteria for national sustainable development evaluation: natural resources and environment, social, technology transfer and development, and economic growth. This CDM application within a petroleum exploration and production project is Thailand’s first! If this Project receives final approval and is officially registered by the CDM Executive Board, it will no doubt encourage other operators in Thailand to initiate their own participation in this business.

Carbon finance through the Clean Development Mechanism (CDM) offers significant opportunity to a developing country like India for an array of greenhouse gas (GHG) emission reduction projects. However, the transaction cost associated with the development of CDM project is a serious barrier to many small scale CDM (SSC) projects due to which these proponents face many difficulties in attracting international investors. To reduce this transaction cost, individual small projects with similar project context can be bundled together to form a single CDM project. These SSC bundled projects that reduce GHG emissions can claim Certified Emission Reductions (CERs) under the concept of bundling. This paper presents 98 bundled CDM projects registered and issued worldwide till October 2014, out of which India has 29 projects, along with a case study on small scale hydro-electric power generation project. The visited project is a good example of clean technology that helps to reduce stress on conventional energy sources and is an improvement of social and economic life of local people. Energy efficiency, grid connected electricity generation, fossil fuels switching, thermal energy production and methane recovery are some of the methodologies in these types of projects. These methodologies reduce GHG emissions without harming the environment.

. The purpose of Clean Development Mechanism (CDM) is to reduce the emission of greenhouse gas through carbon credit. The mechanism allows projects or business enterprises related to the reduction of carbon emission in developing countries to receive the Certified Emission Reduction (CER). The current research uses the qualitative approach and analyzes policies on Value-Added Taxes (PPN) and the Income Tax (PPh) to determine the ones appropriate for CER transactions in Indonesia. India’s policies of PPN and PPh on CER transactions are used as a benchmark to analyze tax policies on CER transactions in Indonesia. The current research shows that, in regard to PPN taxable objects, CER is the equivalent of a marketable security or collateral. Article 4 Clause (2) Point d in UU PPN Indonesia states that marketable securities are categorized as non-taxable goods; therefore, in accordance with UU PPN, a CER transaction is exempt from PPN. PPh laws and regulations state that the income from CER sales in Indonesia is subject to the income tax. To support the policy on carbon emission reduction, the government can issue a policy in which PPN is not levied on imported machines or equipments used in technology transfer activities, and thus facilitate the growth of CDM projects. Keywords : certified emission reduction (CER), clean development mechanism (CDM), income tax, value-added taxes

Financial support for Clean Development Mechanism (CDM) projects in under-represented host countries was agreed on at the 2009 Copenhagen climate conference. The EU rules include special import quotas for certified emission reductions (CERs) from least developed countries (LDCs). This paper discusses whether these measures can contribute to overcoming barriers to CDM development in LDCs, how programmes of activities (PoAs) are performing and how CDM projects and PoAs contribute to sustainable development (SD) in LDCs. CER supply and demand scenarios for 2013–2020 show that preferential access measures for LDCs would not have an important impact on CDM in these countries if the barriers for project implementation are not overcome. The specific CDM projects and PoAs found in LDCs yield potentially high SD benefits. Through a comparison between the climate regime and the Lomé Convention, a preferential access agreement in agricultural trade, we conclude that not just preferential access is important, but also reduced access costs and the removal of underlying barriers. Increased incentives for added-value products characterize Lomé's success stories. For the climate regime, this could be translated into additional financial incentives for CDM projects with added value. As LDCs host a high share of them, PoAs could constitute an opportunity here.

Abstract: Clean Development Mechanism (CDM) is one of the three mechanisms of Kyoto Protocol that aims to stabilize Greenhouse Gases (GHG) in the atmosphere. As transport sector is a main source of GHG and other air pollutants emissions, it is imperative to apply the CDM in transport sector. However, there are some obstacles to adopt the CDM in transport sector. These include technical problems of project boundary certification, baseline setting and monitoring as well the uncertainty of economical viability of projects based on the return of Certified Emission Reduction (CER). Knowing that the GHG mitigation policies for transport sector have generated ancillary benefits other than climate change, this paper intends to take ancillary benefits into account on transport sector CDM project’s economical analysis that never be done before. In order to enhance CDM projects in the term of economical viability, two case studies CDM projects in Bangkok, Thailand were conducted. Key Words: Kyoto Protocol, Clean Development Mechanism, Certified Emission Reduction Ancillary Benefits.

The Clean Development Mechanism (CDM) has been internationally implemented as a part of the Kyoto Mechanism to reduce Greenhouse Gases (GHG) for mitigating climate change. Although forest is considered as the only carbon sink and its significance has increased, the number of registered Afforestation/Reforestation (A/R) CDM projects has recently decreased. Also, the Paris agreement, the new regime of climate change, sets to outline Sustainable Development Mechanisms (SDMs) to substitute CDM including A/R CDM, but the rulebook does not finalize yet. Therefore, it is essential to review the status of registered A/R CDM projects to build a best practice model on forestry sectors before entering the new framework. This study would research A/R CDM projects implemented in India, which is the most active country to be interested in Afforestation and Reforestation. The used materials were 19 Project Design Documents for A/R CDM projects in India, including statistical and spatial data. Those documents were used to identify the status and analyze the environmental and socio-economic factors in the study area. As Sustainable Development Goals (SDGs) is important during project decision making process, the relationship between current CDM projects and SDGs, the other important framework to be achieved, used for the analysis. The major project areas were in Uttar Pradesh carried out by Divisional Forest Officer (DFO) from Indian administration. The climates of A/R CDM projects areas including Uttar Pradesh were mostly warm, dry, and well-drained, and the native plants were highly preferred. Unlike the other project areas, Uttar Pradesh was economically worse, which means that the area was highly related to SDG 2 and 15. This research could contribute to achieving SDGs by matching each goal with the environmental and socio-economic factors. Throughout the matching, host countries could select the suitable factors to achieve SDGs by implementing the A/R CDM projects. This study would suggest the framework which should be considered before implementing A/R CDM or other projects related to forestry sectors. As a result, it could be connected to respond to climate change, forest management, and GHG reduction ultimately.

The potential of Clean Development Mechanism (CDM) projects to deliver pro-poor benefits at the community level is examined. Both regular CDM and premium add-on standard projects are evaluated, including the Gold Standard and Climate, Community and Biodiversity (CCB) Standard, through the use of seven poverty indicators. Some key characteristics associated with providing pro-poor benefits are also identified. Finally, the market potential of a revised or new premium add-on standard explicitly designed to deliver pro-poor benefits is assessed through the use of a survey. The results indicate that regular CDM projects are only moderately successful at delivering pro-poor benefits. Although the few projects registered that utilize the CCB Standard all performed well in delivering pro-poor benefits, those that used the Gold Standard performed only slightly better than regular CDM projects. Characteristics associated with providing pro-poor benefits include the use of add-on standards, a high level of stakeholder participation, and the development of projects by not-for-profit and government/intergovernmental organizations. The survey of carbon market participants indicated both an interest and desire for Certified Emission Reduction (CER) credits with pro-poor benefits attached and shows that the market potential for such a standard to be quite good. Policy relevance This analysis of the CDM goes beyond sustainable development to consider the potential of a project to deliver pro-poor benefits at the local community level. Specific characteristics associated with projects are identified that appear to deliver pro-poor benefits that may benefit future project design. Through this analysis and identifying these characteristics, actions may be taken to incorporate those into CDM project requirements or guidelines to advance the mechanism as a means to contribute to poverty alleviation.