Introduction *

PART 1: Climate Change Concerns *

Part 2: Sustainable Development Concerns *

Conclusion: What should be in the CDM? *

Decisions are to be taken at COP6, Den Haag, November 2000 on whether (and if so how) sinks should be included in the CDM. This is proving to be a contentious and difficult issue. Some non-Annex 1 countries are supporting the inclusion of land use change and forestry (LUCF) in the CDM, either because of pre-existing commitments to sink offset projects (e.g. Costa Rica), out of forest management concerns, or in the belief that unless these are included their country or region they may not be able to attract CDM projects. .

However, it is also clear that a number of Annex 1 countries support the inclusion of sinks in the CDM, primarily in order to gain access to even "cheaper tons" of carbon than would otherwise be available through a clean technology orientated CDM.

This discussion paper addresses some basic issues around the rationales for including or not including LUCF activities in the CDM, and the impact of this decision on the environmental effectiveness of the Kyoto Protocol. The paper examines both the pros and cons and, based on development and environment concerns, concludes that LUCF activities should not be included in the CDM, at least for the first commitment period.

As stated in Article 12.1 of the Kyoto Protocol, the purpose of the CDM is both to achieve sustainable development and to contribute to the stabilization of greenhouse gas concentrations in the atmosphere at a level that would prevent dangerous anthropogenic interference with the climate system. Eligible for the CDM are projects that pursue those goals in generating certified emission reductions (CER). In order for projects to be eligible for CERs, these projects must meet, inter alia, the following criteria (Art. 12. 5 (b) and (c)): They must be

1. real
2. measurable
3. long-term beneficial to the mitigation of climate change ("leakage" and "permanence")
4. additional to any that would occur in the absence of the certified project activity.

These two objectives and the above four legally binding requirements must be fulfilled in order for projects to be eligible under the CDM. Guidelines or regulations set up for the implementation of the CDM are specifications of those requirements.

The discussion below has been split into two parts, the first pertaining to climate change concerns and the second covering issues surrounding sustainable development and the CDM.

It is essential for atmospheric stabilization to considerably reduce fossil fuel CO₂ emissions. It is true that LUCF projects under the Kyoto Protocol can sequester carbon, but at the same time they permit additional fossil fuel CO2 to enter the atmosphere. It is important to recognise that under the Kyoto Protocol accounting framework each credited sink enables a corresponding increase in fossil fuel CO₂ emissions by industrialized countries.

Under the Kyoto Protocol this means that every sequestered tonne of CO₂ that is accounted for under Articles 3.3, 3.4, 6 and, if agreed, Article 12 leads to an additional tonne of fossil fuel CO₂ released to the atmosphere that would not otherwise have occurred.

Sequestration under the Protocol does not actually result in a net removal of CO₂ from the atmosphere. Sound forest and land use systems outside the accounting system of the Protocol will. This means that in the context of Kyoto Protocol accounting carbon is not carbon: there is a big difference between biotic carbon and fossil carbon, as only the emission reduction of the latter one leads to a stable climate.

LUCF activities do not meet the requirement of "long-term benefits to the mitigation of climate change" as required in paragraph 5 (c) of Art. 12, namely they are dynamic and not permanent. It is also questionable whether they would not have also occurred in the absence of the certified project activity, i.e. it is doubtful whether LUCF activities would be additional (Art. 12.5 (d)). LUCF projects under the CDM share the same problems in this context as those activities, which are permitted under Article 3.3, or which may be agreed under Article 3.4 or 6 of the Protocol.

It is true that deforestation is also a very significant source of CO₂ and other greenhouse gas (GHG) emissions and needs to be slowed and stopped. However, if avoided deforestation is counted for credit then far from reducing net greenhouse gas emissions this simply permits a corresponding increase in fossil fuel CO₂ emissions. Sink projects do not produce a permanent avoidance of CO2 emissions to the atmosphere. The lack of permanence is one of the defining characteristics of LUCF projects.

If a sink project is not permanent or there is leakage (e.g. the activity that caused LUCF emissions is moved somewhere else) or the project is not truly additional then the atmosphere will be worse off in the long run. This is difficult to determine on the project level

On a global net basis forests sequester substantially more carbon, as a result of nitrogen fertilization and atmospheric carbon increase, than they release following land use change, clearing and burning. However, it is anticipated that this terrestrial carbon sink may turn into a source in the next decades if global emissions stay on the rise. Forest ecosystems will ultimately become carbon-saturated. Even without global warming each forest ecosystem will finally reach a state of atmospheric equilibrium where on average over a few years carbon and oxygen uptakes are balanced by releases of these gases.

Rising global warming will speed up soil organic matter turnover, decomposition of leaf litter and respiration of the living forest trees. Moreover, non-biotic factors such as forest fires triggered by increased droughts will contribute to forests becoming sources rather than remaining sinks of greenhouse gases.

As long as emissions reduction targets for the main polluting countries are rather modest and do not prevent long-term climate change, only carbon dioxide reduction measures at source that leave carbon untouched in the geological formations of the fossil fuel reserves are thus eligible to fulfill the criteria of permanence of emissions reductions.

The Intergovernmental Panel on Climate Change (IPCC) estimates that at least one-third of the world’s remaining forests may be adversely affected by changing climate, especially in the boreal zone where the warming will be greatest. Damages are not however limited to the high latitude zones. The Hadley Centre for Climate Change at the United Kingdom Meteorological Office has predicted that, by 2050, forests globally will become a significant net source of CO₂ emissions. In this scenario, huge blocks of remaining forests, such as the northern Amazon, succumb to changing climate and die back, becoming grassland, steppe, or desert.

Whilst this result remains scientifically controversial it has highlighted the projections that tropical systems are likely to suffer from the consequences of climate change with adverse effects on a variety of ecosystems.

The prospect of broad-scale forest loss due to changing climate places a premium on slowing the rate of climate change. The prospect of this militates against relying on forest offsets, which permit the release of more fossil carbon and other industrialized gases than is necessary. Under unstable conditions of progressing climate change forests are only temporary and vulnerable carbon repositories rather than long-term sinks.

The graph below shows that climate change itself may cause sinks to become sources of carbon over the next century or so.

The net uptake of carbon to the land surface (i.e. the rate of increase in the terrestrial carbon store) in response to climate change with unmitigated emissions (red line), stabilisation at 750 ppm CO2 (blue line) and stabilisation at 550 ppm CO2 (green line). Note the loss of carbon sink occurs in the 2070s with unmitigated emissions, but is delayed around 100 years with 550 ppm and 750 ppm stabilisation.

Source: www.meto.gov.uk ~ Andrew White and Melvin Cannell, NERC Institute of Terrestrial Ecology, Edinburgh.

It has been argued that CDM sink projects would help enhance the resilience of forests to climate change. This is by no means certain, as it would very much depend on the nature of a project and the quality of its implementation. A bigger issue though is raised by the fact that under the Kyoto Protocol accounted sink credits does not result in additional emission abatement. By allowing sinks in the CDM and transferring carbon from below to above ground, governments would run a very serious risk of making these forests even less resistant to climate change. The continued transfer of carbon stored as fossil fuels to biotic sinks places increasing demands on a land base where the capacity to store carbon is finite and will shrink further as human population grows and puts additional pressures on the land-base.

In policy terms an additional problem with this approach is the high likelihood that other channels of assistance for forest management and protection would be reduced e.g. ODA programs

Any credited and accounted-for carbon reduction should be permanent – i.e. the avoided carbon should neither appear somewhere else in the region nor later in the natural system. Most forest conservation projects that would qualify for carbon credits would seek to minimize anthropogenic interference in their project borders. However, rural people in forest rich tropics often keep on clearing land for subsistence reasons. They would simply move to other areas clearing other lands. This leakage of deforestation activities from one place to another so far cannot be easily determined or accurately measured.

The project approach also fails to address the underlying causes of deforestation and forest degradation. Worse, project based activities can create perverse incentives to maintain policies and programs that encourage deforestation and forest degradation, as this makes the projects themselves more valuable by contrast. Similarly, projects create an incentive for developers to maintain "bad neighbors" who continue destructive activities as this boosts the amount of carbon that can be credited by project developers. This is a structural form of "leakage" that arises from the logic of the project approach for LUCF.

Cheap sinks will make it even easier for Annex 1 countries to reach their targets while allowing emissions to increase.

The Kyoto Protocol framework allows that for every claimed ton of sequestered carbon there be a corresponding increase in the allowed emissions (assigned amounts) of the claimant Party. Thus the result of the CDM permitting sinks would be to increase the allowed emissions of industrial gases including CO₂ beyond that which would otherwise have been the case.

It is clear from the IPCC Special Report the scale of LUCF activities is such that it could pre-empt the need for action to reduce industrial emissions for the Annex I Parties as a group. The Kyoto Protocol runs the risk of becoming a poorly conceived "land use protocol". The following paragraph was removed from the Summary for Policy Makers (SPM) of the IPCC Special Report on Land Use, Land Use Change and Forestry (LULUCF) Activities:

:

The IPCC Special Report on LULUCF has produced estimates for the net credits from feasible additional activities for the Annex I Parties and globally. Table 1 shows a summary of these results from the Summary for Policy Makers who has interpreted this work producing estimates for these in the first commitment period which sum to 288 MtC/yr based on an assessment of what is probable and assuming an ambitious policy agenda. The estimated potential for some LUCF activities globally from which can be inferred from this table are that the non-Annex I potential for 2010 is of the order of 700 MtC/yr, the same magnitude of the Annex I emissions reduction requirements. This estimate does not include forest conservation for which the estimated potential is somewhat larger and at a lower overall cost.

It now appears that the IPCC has significantly underestimated the potential of LULUCF. The United States, in its August 1 submission, has assessed over 300MtC/yr from including additional LULUCF activities, more from this one country than the magnitude for all of Annex 1 estimated by the IPCC.

In order to gain public support in Annex I countries for the Kyoto Protocol, the focus of implementation needs to be in those nations. In countries such as the U.S., domestic emission mitigation is likely to bring substantial benefits to local populations in the form of reduced air pollution, reductions in damage associated with acid rain, reduction in mercury poisoning of lakes and streams and technological innovation. Such benefits are likely to be an important part of the political equation for gaining public support for action.

On the other hand funds spent on sink projects under the CDM are likely to become controversial. Some companies are proposing to use genetically modified tree plantations, others have engaged in clearing primary forest to plant plantations ostensibly for carbon credits and so on. Social conflicts over land use could increase. As the public becomes more aware of such activities they will attract increasing public concern and opposition.

The concerns related to the second purpose of the CDM, its contribution to sustainable development, are of equal importance. Discussed in this section is the question of the economic significance of the CDM market and the potential role of sinks in this context, a consideration of the arguments for inclusion of sinks, the deliverability of sustainable development objectives and finally the potential opportunity costs of including LUCF activities.

The economic role and significance of the CDM is likely to be influenced very much by an interlocking set of factors and issues. These include the baseline growth in emissions in the OECD countries, the availability of "hot air", the extent of the use of sinks by the Annex I Parties under Articles 3.3 and 3.4 and the overall rules for Joint Implementation, emission trading and the CDM. Institutional and political issues will also affect the size and magnitude of the CDM market.

The smaller the supply of hot air, the more restricted the use of sinks under Article 3.3 and 3.4 the greater will be the price that developing countries can attain for Certified Emission Reduction (CERs) from CDM projects. Conversely, the larger the supply of hot air, the more extensive the use of sinks the smaller will be the price commanded by CERs as demand will be lower. It is useful therefore to briefly assess the economic significance of the CDM market and the factors that affect this.

There are many estimates of the potential size and role of the CDM in relation to the implementation of the Kyoto Protocol and its mechanism. Reproduced below are estimates from a recent study conducted for the Asian Development Bank (ADB). Baseline emissions for the Annex I Parties indicate that a total reduction effort of around 620MtC/yr would be required in 2010. This determines the total potential "demand" of CER’s, Emission Reduction Units (ERU’s) and Assigned Amount Units (AAU’s) in the "carbon market" under the Kyoto Protocol. Within this modelling approach the demand for CDM CERs varies between 132 MtC/yr and 358 MtC/yr depending on whether the EU ceilings formula is adopted or there is completely free trade but no hot air. The ADB study does not account for the potential role of sinks at all and as shown above in Table 1 the IPCC Special Report, however, has identified that sink options from Article 3.3 and 3.4 are of this magnitude alone, not taking into account forest conservation.

Table 2 shows the split between different categories of action – domestic, "hot air" trading, emission trading and JI (not from the "hot air" category), and the CDM - divided by three scenarios for limits on the mechanism – no limit, EU ceilings, and no hot air. The "no hot air" case produces the maximum CDM market, whereas the EU ceilings case, because it produces the maximum domestic action case, produces the smallest CDM market. Table 3 shows the estimated division of the CDM market geographically. It indicates that under each of the scenarios China and India would get around 75% of the market share.

This analysis is typical of those that have given rise to concern in, for example the African region, that some regions and countries may miss out on opportunities under the CDM. It is clear that the larger the sink activities agreed in the Annex I group under Article 3.3 and 3.4 the smaller will be the domestic abatement efforts on gross industrial emissions. This is very likely to feed into a lower demand for CDM credits, as hot air is also doing.

Tables 2 and 3 indicate that the CDM market will be relatively large, because the marginal abatement costs in most Annex 1 countries appear to be higher than those of Non-Annex 1 countries. In this modelling study the CDM will deliver quite cheap reductions compared to the costs claimed by Annex 1 Parties, even without considering sinks. The IPCC Special Report has, in effect provided an estimate of the total amount of sinks credits available from the Non Annex I Parties by 2010 for a range of activities. Table 1 above shows the estimated potential for some LUCF activities globally from which can be inferred that the Non-Annex I potential for 2010 is of the order of 700 MtC/yr. This estimate does not include forest conservation for which the estimated potential is somewhat larger and at a lower overall cost.

Knowing that a range of sink projects are likely to be even cheaper than the energy projects assessed by the ADB, one could assume that the volume of credits traded through CDM projects will be even higher if sinks are allowed. But will this attract larger investments in total? No.

Although the volume of projects are likely to increase when prices fall, the overall investment transfer is not, when taking into account that sinks are cheaper, and that the demand from Annex 1 is constant and limited.

The same outcome occurs with the inclusion of other cheap options, such as "clean coal" being promoted by certain Parties, compared to a situation without these options.

The argument that cheap sinks in the CDM will deliver a "stronger economic pressure to decrease the cost of renewable technologies", is not justified. . The challenge for renewable energy promotion in all parts of the world is to further reduce costs and move to large-scale manufacturing. By introducing widespread use of cheap sinks in competition to these, the new energies will simply be pushed back from the economically viable window.

It has been very difficult to find an appropriate estimate for the CDM supply curve for land use change and forestry projects. It is clear however that the inclusion of sinks in the CDM will make many more cheap projects available, leading to decreased total money transfer from Annex 1 to Non-Annex 1 Parties, and at the same time allowing the industrialised countries to let their emissions of CO2 to the atmosphere grow.

Forest Conservation projects are estimated to be at the cheap end of the proposed land use change and forestry project scale. Kremen et al, in a Science article circulated at the 12^th Session of the UNFCCC Subsidiary Bodies in Bonn, notes that a sink project (forest conservation) in Madagascar will be able to deliver CER’s in the range of $ 0.07 – 1.24 per ton of carbon with a maximum price of $ 4.34/ton of carbon. It is clear that the supply of CERs at this price would have significant and detrimental effects on the possibilities for renewable energy projects to compete. Schwarze notes that an average price of all land use change and forestry projects could be $ 9.54 per ton of carbon. This fits with recent IPCC figures.

The potentially available volume of these types of projects, if allowed in the CDM or JI in particular, appears to be huge. The IPCC Special Report on Land Use Change and Forestry has not estimated any likely volume for forest conservation projects. The IPCC Second Assessment Report finds that annual deforestation contributes to approximately 1,600 MtC of carbon release annually. This is about 20% of the total anthropogenic emissions, and is 2 times the difference between projected emissions and the emission targets for annex B countries.

If one assumes that only 20% of this available for CDM projects, under strict eligibility rules, this leaves credits of around 300 MtC potentially available annually.

The introduction of this amount of very cheap projects in the CDM equation will drastically reduce the amount of money and technology transferred to developing countries, remove the incentive to develop less carbon intensive technologies in developed countries and allow industrialised countries to increase their emission close to business as usual.

The graph above indicates the outcome of introducing cheaper options in the CDM. This is illustrated by the lower curve. The hot air is available for free, and is estimated to 150 MtC/yr. (See separate Greenpeace paper on Cheating the Kyoto Protocol: Loopholes and Environmental Effectiveness for further discussion.) The table is derived from the ADB and MIT EPPA model supply and demand curves.

While the supply of cheap quotas from developing countries and EIT is projected to be relatively flat, the corresponding carbon credit demand from the OECD is said to be steep. According to the EPPA model (MIT), 500 MtC can be reduced at $ 20- 60 a ton, while 200 can be reduced at 0- 30 USD per ton. The international supply is said to be the opposite, and the market balance is said to be reached at a marginal price of 20- 30 $ ton C. The demand curve is twice as steep as the supply curve. The mid estimate scenario with marginal price at 23 $ per ton is illustrated by the lowest supply curve and the demand curve sketched schematically above.

The difference between the two corresponding curves implies that the suppliers will be better off by offering a slightly reduced quantity, to a much higher benefit. Adding additional cheap opportunities to the CDM, like extended use of sink activities and forest conservation at very low prices, will further limit the increase in the supply curve, and make it even less steep than outlined from the EPPA study. This will be achieved by limiting the offer of very cheap CDM credits, as sinks and clean coal options. Both curves include approximately 140 MtC of "hot air".

The graph illustrates two important points. First, we see that a range of projects economically viable in the first case, are not being realised in the latter case with sinks included. If sinks are included, these projects will not be realized. Secondly, the total amount of money transferred to non-Annex 1 countries is reduced, even as the volume traded increases: the developed world has got their cheap tons, but the quality of the projects in the CDM is fundamentally altered, at the costs of the non-Annex 1 host countries.

Some of the most pertinent arguments in favor of LUCF activities under the CDM are briefly analyzed below.

One major argument in favour of LUCF projects, put forward mainly by Colombia but also raised by a number of other Parties, is that LUCF projects would be the only ones a country would be eligible for and attract foreign CDM investment. It is currently overlooked that this concern relates not only to emission reduction and energy efficiency projects, but also to LUCF projects.

Furthermore, it is difficult to believe that the current energy supply system of any one country in the world would not allow for substantial energy reduction and renewable energy projects. Car and public transport emission control and household energy use are two sectors that come to mind immediately. Whether companies are interested or not in investing in those sectors is entirely up to the Parties to the Kyoto Protocol as they are the ones elaborating the modalities and procedures of the CDM. The CDM could, for example, target small-scale projects and have special provision for their eligibility, for example by providing incentives for packaging small scale projects into country or region programmes aimed at joint assessment and baseline definitions.

A number of sustainable development objectives are cited in favor of including LUCF projects in the CDM. Whilst these often have a sound theoretical justification there are large question marks surrounding their practical deliverability.

The international community’s failure to meet the sustainable development commitments made by governments in Rio should keep being assessed through the relevant bodies, not gathered into the Climate Convention only. Social and equity issues in relation to indigenous people, rural land holders and peasant farmers will remain of concern.

Land that policy makers perceive as degraded or unproductive can often be an important resource to rural stakeholders, particularly disadvantaged groups with little formal access to policy and project development. Experience in many developing countries has shown that large-scale tree planting schemes, often backed by foreign capital, can result in loss of customary use rights and the displacement of poor and disenfranchised people from their traditional lands. Such schemes impact negatively on rural livelihoods, increase the possibility of social unrest, and ultimately threaten the destruction of the forest resource, through fire, unsanctioned livestock grazing, and cultivation.

Even where a newly reforested area remains intact, displacement of local communities can lead to deforestation and consequent carbon emissions in adjacent forested areas. Long-term security for biotic carbon storage in developing countries requires that the social and equity issues surrounding land use is fully addressed.

Indigenous peoples’ participation and perspectives, for example, are largely missing at these negotiations. Decisions may be taken that impact these groups and their territories seriously, without there being effective mechanisms for the participation, input and informed consent. This further amplifies the difficulties with needed effective participation already faced by many small and under-funded G-77 delegations. Sinks in the CDM raises major short and long-term social and equity issues around land-use for these countries, and has still to be appropriately assessed or considered.

Significant environmental, social and economic trade-offs among agricultural land use patterns exist both today and into the future. If land is set aside from agriculture for forests under the Kyoto Protocol, it is effectively removed from food production. In order to fulfil the requirement of permanence under the CDM, planted forests cannot be turned back into agricultural uses or otherwise it becomes an issue of liability.

Permanence requirements on managed lands needed for climatic effectiveness may conflict with the longer term needs of developing countries to maintain management options over the next 50- 100 years. Growing populations and socio-economic development suggest that flexibility in land-use will be essential to meet basic needs of both present and future rural populations who depend on these resources for the basic livelihoods in the decades ahead. This applies also to Annex 1 countries, but not in the same degree. This decade’s surplus agricultural land may well prove to be essential for agricultural production later in the 21^st century. Do G-77 countries fully understand the long-term social, economic, legal and political implications of land use constraints and possible carbon colonialism that agreeing to accumulate Kyoto Lands in their territories through the CDM implies? Is it fair that some Annex 1 populations that my be emitting 350 times the greenhouse gases per capita of a rural subsistence farmer in the South now have the right to appropriate 350 times as much land in the South to offset this?

Experience indicates that forest projects often fail to deliver the sustainable development objectives claimed by their proponents. There is no reason to imagine that the sudden entrance of the CDM into the forest policy equation will cause the current actors to change their modus operandi.

In addition to this, one may question the equity aspect of offering these "cheap carbon offsets" in developing countries to the rich Parties at this stage, when we know that more Parties will need to take on binding commitments in later periods. From this point of view, the inclusion of extremely low cost options is like The North once again is appropriating South low hanging fruit for it’s own benefit.

The inability to show additionality, the high likelihood that CDM will not address the underlying causes of forest degradation and loss and the existence of leakages means that a forest protected under a CDM project is unlikely to improve the overall conservation of forests. It is likely that the activities or forces causing forest destruction and/or degradation simply move to another location. Project "economics" may become a perverse incentive to maintain or increase the credibility of threats to these forests in order to manipulate baseline calculations, leading to negative overall outcomes for forests.

A common argument in favour of using sinks credits in the CDM is biodiversity protection, however:

In addition the inherit carbon focus of the CDM fails, and is not designed, to address the underlying causes of deforestation. By camouflaging this, the CDM could create perverse incentives to maintain negative forest policies and activities that encourage deforestation and forest degradation, in order to enhance the amount of carbon sink value of the project activities that are undertaken.

Impacts of climate change on ecosystems will disproportionately impact the rural poor and others who depend directly on the land for their basic livelihoods. If sinks are not effective mechanism for preventing climate change, as has been discussed above, then the small number of rural poor that may benefit from projects over the short term would be overwhelmed by the larger populations that will confront climate impacts, such as drought, sea level rise, etc, that threaten and destroy their very livelihood possibilities. Hundreds of millions of persons are living subsistence livelihoods in regions that are expected to be impacted by significant climate change.

Costs of adaptation (if feasible) could easily exceed short term "savings" of widespread use of sinks over the short-term. Allowing sinks in the CDM may imply further jeopardizing future generations of rural populations threatened by climate change, in violation of one of the basic principles of sustainable development.

There are opportunity costs of LUCF CDM projects compared with energy sector CDM projects that need to be recognised. Depending on the decisions of parties related to 3.3. 3.4 and the CDM, potential supply of LUCF sinks could exceed by 3-4 fold the "demand" established by the emission reduction targets of the first commitment period. In aggregate, the inclusion of extensive sink activities will result in significant aggregate reduction in financial flows through the CDM, compared to flows that would occur if sinks were excluded, AND make otherwise viable projects not viable, as discussed above. It is not a discussion IF CDM credits will be transferred, but of which price and quality.

Fossil fuel is the main element of the energy system in most countries, and the use is projected to increase rapidly, especially in developing countries. Large health impacts and other environmental effects are caused by air pollution arising from fossil fuel use. Large and immediate health benefits can be gained from emission reductions at source, particularly in developing countries. By diverting CDM investment from activities which would reduce (or avoid) industrial emissions, sinks projects would have a significant opportunity cost in terms of the health benefits to be gained by direct fossil fuel emissions reduction. For example, reductions of coal use would also reduce acid rain problems and lower mercury contamination.

There is nearly universal agreement that a long-term solution to climate change will require fundamental changes in the energy sector, with a shift away from primary reliance on fossil fuels and toward renewable technologies and energy sources. Thus the Kyoto Protocol’s success will depend on the signal it sends to markets that governments are serious about beginning this transition and investing in it. Credit for carbon sequestration may shift emphasis away from curbing emissions in the energy sector, thus reducing the drive for technologies to reduce CO₂ emissions at the source. In addition, reliance on sinks offsets represents an opportunity cost in terms of the longer-term economics of emissions reductions.

By waiting to develop new technologies, countries would forgo the opportunity to extend the time for technological learning an opportunity that is known to reduce costs in the mid-and longer term. In addition, offering sink offsets would reduce the amount of technology transfer to developing countries.

The same is the case for energy efficiency, cleaner transport systems and technologies in developing countries. It is clear that an introduction of clean energy and transportation systems would help with many sustainable development problems.

3. Undermine transfer of clean energy technology to developing countries

Use of sinks in the CDM would effectively crowd out the transfer of more expensive clean energy generation and use technologies to developing countries. Introduction of clean energy systems would help with many sustainable development problems including in areas where people are not connected to central electricity supply systems.

For Climate Protection

• Clean, safe and renewable technologies, including bio-fuels

To bring this about there is a need for a linked set of policies needed to ensure that the CDM is focussed on clean, safe and renewable technologies and some highly efficient end-use technologies.

• Strong limitation on the capacity to transfer hot air credits
• Strong compliance and buyer liability rules must be force.
• Encouragement for domestic action in developed countries.

• Similar rules for JI as for the CDM.

• An exclusive positive list of technologies, which excludes coal, nuclear power, large hydro projects and sinks.
• Sound project eligibility criteria including investment and financial additionality.
• Incentives for Packaging of small scale projects into country or region programmes, to decrease transaction costs for these projects
• Reliable baselines for Emissions Avoidance Projects
• Specific incentives for countries with low per capita energy use
• Public participation and prior informed consent at important stages in the CDM cycle must be ensured.
• Strong measures to ensure effective capacity building, which will increase the different countries’ and regions’ competitiveness in terms of CDM project eligibility and decreased transaction costs.

• Availability of sink credits to the Annex I Parties needs to be strictly limited.
• There should be no credits for additional activities in the first commitment period.

Taking the precautionary principle into account and the requirement under Article 12 that projects produce "real, measurable and long-term benefits" to the climate, it seems more than prudent to leave sinks out of the CDM, especially when we know there are far better alternatives available. Rather focus on projects and activities directed at reducing fossil fuel emissions that will deliver sustainable development benefits through the CDM that result in real, measurable and long-term benefits and encourage effective contributions by all parties towards preventing climate change.

FOR MORE INFORMATION

Bill Hare

Climate Policy Director, Greenpeace International

Phone: +31-20-523-6222

Fax: +31-20-523-6200

Email: bhare@ams.greenpeace.org