| Increasing Demand and Reducing Supply A Rescue for
By Martin Stadelmann, Ken Newcombe and Axel
FNI Climate Policy Perspectives 11
A global strategy to reduce
greenhouse gas emissions can be cost-efficient only if backed by incentives for
mobilizing the lowest-cost options for emission reduction. As only a subset of
nations today have country-wide emission commitments, and sector-based
programmes have been slow to evolve, the project-based carbon market is a
crucial element in a global mitigation strategy.
The Clean Development
Mechanism (CDM) has registered over 6000 emission reduction projects in
developing countries and has generated over 1.2 billion emission credits.
However, it has been jeopardized by the crash in the prices for emission
credits, from over EUR 10 in 2011 to a few cents. This crash is due to the
economic crisis and lack of political ambition, reducing the demand for
emission credits in industrialized countries.
of global emissions will require stability in the carbon price in developing
countries, restoration of private-sector confidence in carbon markets and
preservation of human capacity on how to organize mitigation projects, inter
alia. Saving the CDM could build a bridge until national and sector-wide
carbon markets become operational.
Rescuing the CDM can be achieved by
(1) increasing credit demand, e.g. by deeper emissionreduction targets or the
inclusion of international targets in the carbon market, and (2) by cutting the
credit supply, e.g. by discounting credits or excluding project types that are
already business-as-usual. Such a rescue programme will also have to improve
the environmental integrity and the image of the CDM.
market price offers a unique opportunity for public actors to source low-cost
abatement projects that fit their own strategies, as anyone paying more than
the market price can decide on the type of credits to be supplied.
rescue programmes can also help to strengthen environmental integrity and
sustainable development, e.g. by excluding specific project types and promoting
others. Such interventions could be quickly implemented by decentralized buyer
actions, whereas centralized UN interventions that preserve market uniformity
would take more time.