The first part of this article, which was published last week, gave an overview of the series of events, which led to the formulation of the United Nations Framework Convention on Climate Change. This was the first step in addressing one of the most urgent environmental problems facing humankind - climate change, which is now recognised as also having major economic and social repercussions globally. The UNFCCC sets an overall framework for intergovernmental efforts to tackle the challenge posed by climate change. The Kyoto Protocol, which followed on the UNFCCC, sets binding quantified targets for 37 industrialised countries and the European Community (that are included in its Annex B) for reducing or limiting greenhouse gases emissions. The Copenhagen Accord set out principles for future action without however setting out any legally binding rules and procedures.
The Kyoto Protocol Mechanisms
The Kyoto Protocol broke new ground with its three innovative mechanisms namely: the clean development mechanism, better known as CDM, joint implementation (JI) and the much discussed ‘emissions trading’ (ET).
These mechanisms are designed to boost the cost-effectiveness of climate change mitigation by opening ways for the State Parties to the Protocol to cut emissions, or enhance carbon “sinks” where it is cheapest and more effective to do so, potentially even abroad rather than at home. In reviewing the Kyoto Protocol mechanisms, one should always bear in mind that, although the cost of limiting emissions or expanding removals varies greatly from region to region, the benefit to the planet’s atmosphere from the mitigation or the remedial action taken does not depend on the location where the action is taken.
The Clean Development Mechanism (CDM)
Clean Development Mechanism (CDM) is a project-based scheme whereby Annex I parties (or entities in such countries) can implement sustainable development project activities in non-Annex I countries that result in reduction in emissions of greenhouse gases as compared to a defined baseline. Projects that achieve real emission reductions, according to the CDM’s stringent rules, earn saleable units recognised internationally. Thus, the reductions in emissions of greenhouse gases earned by the Annex I participant function as “credits”, referred to as “Certified Emissions Reduction” (CER) units that can be utilised either by governments to help meet their own emissions targets in compliance with the Kyoto Protocol or by installations participating in local emission accounting initiatives, such as emissions trading schemes, for compliance purposes. Alternatively, participants can choose to trade and sell the CERs generated from the CDM project to industrialised countries to assist the latter meet part of their targets under the Protocol. The CDM, however, is not just that: it is also intended to assist non-Annex I States themselves achieve “sustainable development”, thus contributing to the ultimate objective of the UNFCCC.
The CDM is expected to generate investment in developing countries, especially from the private sector, to enhance the transfer of environmentally-friendly technologies and, thus, promote their sustainable development. Projects of various types are possible under the CDM such as renewable energy, energy efficiency, capture and utilisation of landfill gas and destruction of N2O and HFC from industrial processes via catalysts. A CDM project activity might involve, for example, a rural electrification project using solar panels, the installation of more energy-efficient boilers, wind farm projects such as the Essaouira wind power project in Morocco that proposed 71 turbines of 850 KW each, and numerous other activities by other States that followed. Cyprus has four wind-farm CDM projects and four manure anaerobic digestion projects, five already registered. The total number of registered CDM projects at the end of 2009 amounted to around 1,800; 232 other projects were in the process of registration while 2,600 projects were awaiting validation. The total CDM projects running or proposed (excluding those that have been rejected or withdrawn) amounted to more than 4,600.
The CDM is overseen by an Executive Board answerable ultimately to the countries that have ratified the Kyoto Protocol. The rationale of the CDM is (as for all the Kyoto Flexible Mechanisms) that, from the global environmental point of view, the place where the emission reduction takes place is of secondary importance provided that real emission reductions are achieved.
The CDM is seen by many as a trailblazer. It is the first global, environmental investment and credit scheme of its kind, providing a standardised, emissions, offset instrument, namely CERs. Malta’s enthusiasm for climate change initiatives as demonstrated in international fora, its political stability, its readily available human resources and, more recently, its membership of the EU, taken together with the political consensus supporting the deployment of renewable energy projects, undoubtedly presents potential opportunities for investors seeking to invest in Malta. Such opportunities have, however, so far, gone untapped; only one project has, so far, been submitted to the Designated National Authority (MEPA) for the necessary approval process. To date, this is the sole local CDM project proposal that is undergoing the CDM process, hence the clear underutilisation of this investment opportunity.
Malta’s political will to take on CDM projects has found recent mention in Malta’s Climate Change Strategy. Recommendation 05 of the Strategy states that “the government should strengthen its strategic, institutional and promotional capacity in order to establish a vibrant Clean Development Mechanism framework in Malta, and in so doing secure a synergy between government entities such as MEPA, EuroMedITI Ltd, appropriate government entities and the private sector in order to optimise opportunities available to Malta through the Clean Development Mechanism”.
The Climate Change Strategy mentions low political risk, good credit rating, favourable investment climate and a sophisticated financial system constitute an advantage for attracting investment and implementing CDM projects in Malta. Malta is also well positioned as a gateway to the MASHREG and MAGHREB countries around the Mediterranean and into Africa, where potential CDM opportunities exist. The possibility for Malta to attract CDM projects to its shores is no longer an option since, following COP 15, Malta’s status under the UNFCCC has changed, on Malta’s initiative, to “Annex I”.
Emission-reduction project developers, banks, investment firms, brokers, technology developers, among others, have all been indicated as potential “participants” in the carbon market. Indeed, it is the private sector that has been expected to drive CDM activities.
The CDM Executive Board has defined procedures for accepting and encouraging the development of small-scale projects, notably for renewable energy and energy efficiency activities. Such projects are entitled to use simplified modalities and procedures. Furthermore, there is the possibility of bundling of projects, whereby several small-scale projects may be brought together to form a single CDM project activity without the loss of the distinct characteristics of each project but with the advantage that the entire bundle can be processed as one. Bundling will therefore serve to streamline the procedural process and potentially reduce, even significantly, the related administrative costs. CDM initiatives should sit well in any small country’s strategy on realistic participation in this mechanism.
The concept of Programme of Activities has also been given due recognition under CDM rules: this involves coordinated implementation by a public or private entity of a measure or policy which achieves emission reductions or removals by sinks that are additional to what would be the case without the programme of activities. This approach could provide an opportunity for linking government and other public or private actions towards real environmental achievements with associated financial rewards.
The third part of this article will focus on the other two innovative mechanisms introduced by the Kyoto Protocol: Joint Implementation and Emissions Trading. This article will also feature in the Mediterranean Journal of Human Rights - ISSN 1027 - 4375 and is being published in ‘The Malta Business Weekly’ with the prior permission of the editors of the ‘Mediterranean Journal of Human Rights’. A lecture on this topic is planned to be delivered by the two co-authors of this article at the Institute of Legal Studies, Valletta (ILS) in the near future. For more information, please contact Not. Dr Christine Borg of ILS on cborg@jmganado.com who is coordinating the cours.
