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CDM: A Pro-active Approach to Sustainable Development
By Asger Garnak, FED/INFORSE
 
A purely market-based
CDM may lead to “sustainable dumping”.
However, a number of measures can be taken to ensure that CDM projects really will contribute to sustainable development
One of the two main objectives of the Clean Development Mechanism (CDM) is to contribute to sustainable development in the developing countries (non-Annex I countries.) It follows from this that CDM projects must be acceptable to the host country and in line with the country’s priorities and criteria for sustainable development.
The question arises whether the contribution to sustainable development of a CDM project should simply be left to market forces and be negotiated as part of a bilateral agreement between the industrialised country (Annex I country) investor and the host country. There are several reasons why in many cases this will not be sufficient. Thus, supportive initiatives should be taken to ensure that CDM projects contribute to sustainable development:
1.) Many host countries will find themselves in a relatively weak position when negotiating with potential foreign investors that are in possession of more information to assess impacts, both in terms of costs and benefits of a given project. Experience from the AIJ (Activities Implemented Jointly) pilot phase confirms that lack of capacity on the part of host countries is often seen as a serious constraint and may lead host countries to enter into project agreements that turn out to be far from ideal from their perspective.
2.) In the absence of guidance and standards regarding sustainability, a market-based CDM may drive host countries to sacrifice national priorities regarding sustainability and development as they compete for CDM investment. This could result in a downward spiral of “sustainability dumping” which would be in the interest of no party. This perspective is of particular relevance to the least developed countries (LDCs), which are likely to find it more difficult to attract foreign CDM investment.
3.) It would be tragic to see CDM projects implemented that have serious negative social or environmental side effects or fail to contribute substantially to the host country’s development. If horror scenarios were to materialize, such as large hydropower dams flooding valuable tropical forest and displacing large numbers of indigenous people, the whole CDM would be compromised.
Recommendations
1.) Host country capacity building is at the core of efforts to ensure that CDM projects contribute to sustainable development. Host countries should be supported in developing and implementing a structured process of defining national sustainable development priorities and strategies in relation to CDM. LDCs should receive special support for this process, which should be open and participatory and involve all relevant national stakeholders.
2.) Non-Annex I countries - in particular LDCs - should be supported in building capacity that will enable host country actors to take part in project identification, negotiation, and monitoring. Project appraisal and approval processes should be put in place that help to ensure that host country benefits from CDM projects are maximized while adverse effects are averted. These processes, too, should be open and participatory, involving local communities affected by the projects.
3.) It is often assumed that sustainability is too vague a concept to be included in a verification and certification process. However, experience shows that it can be done relatively easily. The ILUMEX verification pilot project serves as a good example of this. In that project, verification is based on previous work on sustainable development indicators and cooperation with the host government. The methodology does not aim at quantifying sustainability, but it ensures that development is moving in the right direction and that adverse impacts are identified and minimized. The certifying company for the project recommends that for future CDM projects such a methodology be built into the project design, monitoring, and verification process. The process should help to ensure that CDM projects are not inferior in terms of social and environmental sustainability to projects carried out by UN agencies.
4.) The foreign investor company developing projects in a non-Annex I country has a special responsibility for its actions in the host country, as these will often have important consequences for essential infrastructure development within the country. Annex I investors should therefore be required to adhere to a reasonable code of conduct guiding transnational companies operating abroad in countries that often have limited capacity to monitor foreign investors. Reference can be made to the code of conduct developed by the OECD or the work that has previously been done on drafting a UN Code of Conduct for Transnational Companies.
5.) It is important that coherence among the various UN conventions on sustainable development and environment is sustained. In order to ensure this, the validation and verification process should establish that the project does not violate either sponsor or host country commitments to sustainable development as laid down in international conventions and agreements.
6.) Finally, an indicative list of eligible projects would help facilitate that the bulk of CDM funding is directed toward the energy technologies of tomorrow, i.e. cutting-edge energy efficiency and renewable energy. CDM projects should not provide non-Annex I countries with technologies that only represent marginal improvements over obsolete fossil fuel technologies. Nuclear energy should not be included in such a list either, as it is a clearly unsustainable source of energy.

More information:
Forum for Energy and Development (FED)/INFORSE Secretariat, P.O. Box 2059,
1301 Copenhagen K, Denmark.
Ph: +45 33121307, fax: +45 33121308,
e-mail: inforse@inforse.dk. or
UNFCCC, http://www.unfccc.de/.
The article was an input paper for a UNFCCC Workshop in Bonn, April 1999.
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Sustainable Energy News
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ISSUE #25 (529KB) 16 pages (1999-05-01)
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