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Clean Development Mechanism: Lessons for Post-Kyoto Talks

Posted by: Mark Scott on June 29, 2009

Ahead of the post-Kyoto meetings in Copenhagen later this year, a lot has been made of Reducing Emissions from Deforestation and Forest Degradation (REDD) — a United Nations-backed program that would compensate emerging economies for protecting their forests. (For a good overview, check out The Economist’s article, and the UN’s REDD Web Site). In short, countries that look after their forests would receive carbon dioxide credits, which could then be sold in the world’s cap-and-trade CO2 schemes for a profit.

A similar scheme, called the Clean Development Mechanism (CDM), is already up and running, and has primarily focused on Western companies building renewables projects in the developing world. Many view REDD as a possible replacement for the CDM, which has been plagued by bureaucratic problems and allegations of abuse and corruption. REDD’s proponents also believe the forestation program could have a larger — and, importantly, more cost effective — impact in the fight against global warming.

Yet for those championing REDD, lessons can be learned from the CDM. In an interesting report, Barclays Capital estimate four countries (Brazil, India, China, and Korea) currently generate 92% of all the credits created through CDM projects. Even more importantly, 75 of the largest projects (from a total of 512 worldwide) represent 90% of the CDM credits, which were subsequently sold in the world’s cap-and-trade markets. That’s not exactly a large number of countries/projects for the UN-backed CDM — particularly as it was designed to give as many countries as possible technical expertise and access to foreign direct investment.

For sure, REDD certainly will differ from CDM (apologies for all the acronyms), and you could say focusing investment on large projects offers the highest environmental impact for the cheapest price. But one thing is certain: to get developing countries to accept binding carbon dioxide targets (as the U.S. and other developed countries hope to do), policy-makers will have to show REDD, unlike the current CDM, offers benefits to all — and not just the largest developing countries.



BusinessWeek correspondents John Carey and Mark Scott, cover the green scene, keeping on top of the business aspects of energy, the environment and climate change, as well as the technologies, policies, markets and people that are shaping how the earth's resources will be used in the century ahead.

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