Market and Climate Change

The United Nations Annual Climate Conference (COP-25) is going to happen in December 2019. It is also known as the Conference of Parties (COP). This year the conference is to be held in the Spanish capital Madrid. In this conference, the challenge before various countries is to enable the market to deal with climate change. The current Clean Development Mechanism (CDM) offers a solution to the above challenge, but this situation can change after the Paris Agreement is implemented.


Clean Development Mechanism-CDM

  • This mechanism was created under the Kyoto Protocol. It is related to Article-12 of the Kyoto Protocol. It has been adopted mainly by developed and developing countries. Under this mechanism (under the Kyoto Protocol) any developing country committed to emission reduction or emission control which is included in List-1 (Annex-1) or any company from these developed countries, in other developing countries with emission reduction project Can get carbon credits by investing.

carbon credits

  • In such a project, a marketable Certified Emission Reduction-CER unit can be purchased in a colloquial term called carbon credit. This is equivalent to one ton of CO2.
  • This system can benefit industries as well as help in tackling climate change. Currently China, Brazil as well as India are playing a major role in the implementation of CDM.
  • The Clean Development Mechanism (CDM) has provided financial support in several projects related to energy efficiency and renewable energy in India over the last two decades.

Kyoto Protocol

  • The Kyoto Protocol is an international agreement involving the UNFCCC that commits parties to internationally binding emission reduction targets. This protocol was adopted in Kyoto, Japan in 1997 and came into effect in 2005. Detailed rules related to this protocol were adopted during the COP-7 held in the year 2001 in Marrakesh (Morocco), hence it is also known as the Marrakesh Accord.
  • The principle of common but differentiated responsibility was adopted under this protocol on the basis of activities undertaken in the past by industrially developed countries.
  • Its commitment was completed in two stages. The first phase started in the year 2008 and ended in the year 2012, under which industrialized developed countries had to reduce their greenhouse gas emissions by 5 percent compared to the year 1990. The second phase started in the year 2013 and will be completed in the year 2020, in this phase the emission has to be reduced by 18 percent.
  • The concept of Clean Development Mechanism (CDM) was adopted to avoid the above mentioned emission reductions on industries.

Challenges related to CDM

clean development

  • The Paris Climate Agreement provides for a new market mechanism. This agreement will come into effect from the year 2021. It will probably be difficult to determine the future of CDM after it comes into effect.
  • Most developed countries are strongly opposed to bringing CDM projects and their credits under the Paris Agreement. He argues that CDM discourages the fight against climate change.
  • Economic credits are affected if the carbon credits from projects based on the Clean Development Mechanism are left unsold.
  • Under the new mechanism, CDM projects will have to go through a period of re-verification and registration, thereby increasing their financial and administrative costs.

India and Clean Development Mechanism

  • Currently, India has about 250 million carbon credits issued under CDM by the UNFCCC. A total of 1376 CDM projects are registered in India, 89 percent of which are currently active.
  • The European Union was the largest purchaser of CDM credits for the last two decades. But its demand has been declining for some time. Regulation related constraints can be held responsible for this.
  • The value of CDM credits in the world is estimated at around $ 5 billion. If CDM projects and credits are put on hold in the year 2020, India could suffer huge losses.
clean development mechanism cdm

Why oppose CDM?

  • It has failed to demonstrate environmental benefits.
  • The new mechanism will be adopted after the Paris Agreement comes into effect. The transition of CDM to a new system can be a complex task.
  • Dual calculations from CDM could jeopardize the global goals of cutting greenhouse gases.

Double Counting

  • In the context of climate change mitigation, double counting is used for situations where the reduction in emissions of only one greenhouse gas is calculated at more than one location. After the advent of clean development system, the reduction in gas emissions is double calculated due to various programs of climate change mitigation. This makes it difficult to get the right data in terms of dealing with climate change. As a result, efforts are being made to reduce emissions of greenhouse gases.

Support for Clean Development Mechanism (CDM)

  • CDM projects can be considered to continue until the emission reduction standards set by them are achieved.
  • CDM projects should not be viewed only with technology. Investments made under this and its ability to remove market related constraints should also be considered. Currently CDM has accepted the above challenges and has also achieved success.
  • The transition from the CDM to the new system is more exaggerated and it is said that the excess of CDM credits could harm the carbon credits market in the future. It is also worth noting that under the new technological system, it will take at least more than three years to start various projects.
  • If all the carbon credits related to the CDM projects are available to market simultaneously, their business will increase tremendously, they will also help in fulfilling the obligations associated with the Paris Agreement.
  • Under the CORSIA (Carbon Offsetting and Reduction Scheme for International Aviation), emissions from the global aviation industry are to be reduced. It has been adopted by the International Civil Aviation Organization (ICAO). Aviation companies rely on these types of carbon credits to reduce their carbon emissions. By the year 2022 only 60 percent of carbon credits will be used by aviation companies to demand carbon credits.
clean development mechanism

The challenges

  • Under the Paris Agreement, environmental integrity has been considered a key objective of the market system. The double enumeration under the Clean Development Mechanism (CDM) raises questions on the loyalty of different countries to the environment. At the level of technology, CDM is not a problem if a solution to the problem of double computation is found under it, then a better balance can be established between efforts to tackle climate change and economic development.
  • The ICAO is considering limiting the carbon credits issued after 2015. It is important to note that the aviation industry is considered a good market for carbon credits. In such a situation, if ICAO takes such a step, it could affect the carbon market of CDM in the future.

The conclusion

The Clean Development Mechanism for India is not only a way to get carbon credits but the resources derived from it can be used to give a boost to renewable energy resources in the country. It is believed that after the Paris Agreement, there may be some changes in the current system, as well as some countries do not consider the use and creation of such carbon credits environmentally appropriate. India should formulate a policy keeping in mind the future carbon market, as well as looking for another market for credits in place of the European Union where the demand for carbon credits is steadily declining.

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