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How CDM works |
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When an annex 1 country considers how to meet
the demands of its emissions reduction obligation, it will usually
consider the costs when deciding which route to follow. Within
its own borders it can either make new laws about energy
efficiency , introduce a carbon tax that dissuades polluters
from doing so, subsidize the installation of solar panels,
etcetera. All these methods might have the desired effect but
they would all have different cost structures.
Suppose
now that there is a small, inefficient, coal-fired power
station in a developing country that produces substantial
emissions and that it can be retrofitted into a modern,
coal-fired plant that produces the same energy but less
emissions. The annex 1 country may calculate that it will be
much cheaper to retrofit the coal-fired plant in the
developing country than to effect a similar saving in
emissions by any method within its own borders.
Without
the CDM, this would be an opportunity lost because if the
saving was indeed effected in the developing country by the
annex 1 country it would not count towards the quantum of
emission savings that the annex 1 country is legally bound to
effect in the First Commitment Period. For this reason there
would be no incentive to retro-fit the power plant for either
the annex 1 country (who needs emissions reductions that it
can “count”) or for the developing or “host” country because
it has no duty in terms of the Protocol to reduce emissions
and would thus be wasting money it might need elsewhere in the
economy.
The saving would not be effected where it was
cheapest and the technology would not be transferred to the
developing country.
CDM in effect creates a mechanism
by which such a saving in the developing country can be
“counted” as a saving in the annex 1 country.
It is
very important to take note that CDM can work in another
sequence that has the same result. If the owner of the power
plant, without any assistance from anyone in the developed
world, decides that he can effect an emission reduction more
cost-effectively than what is possible in the developed world,
he can take the initiative to do so and in the end offer his
“saving” for sale to an annex 1 country and this country can
then “count” the purchased saving together with domestic
savings to make up the necessary total. This is known as
“unilateral CDM”.
The CDM process is however subject to
rigorous verification and monitoring requirements in order to
ensure that the saving that is so counted did in fact occur
and has not already been accounted for somewhere
else.
For information on Basic eligibility criteria,
please click on the menu at the bottom left of the page. |
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