Ms. Dietrich is a global specialist on the Clean Development Mechanism (CDM). During her recent, fourth, visit to Pakistan she graciously shared with TBL, her thoughts about the development and potential of the CDM in developing countries like Pakistan.
Khadeeja Balkhi: If you were to capture the essence of the CDM as you see it, how would you phrase it?
Kerstin Dietrich: The Clean Development Mechanism (CDM) is a climate protection instrument that facilitates the use of renewable energies and energy efficiency measures in developing countries.
KB: What sparked your interest in the CDM initially? What keeps you motivated now that you are a global expert?
KD: I have been involved with the German Development Cooperation for more than twelve years now. German Development cooperation is committed to sustainable development. In 2003, I started to work on climate protection. At that time, the CDM was still under development and there were very few projects underway. I found it quite fascinating that a market instrument should contribute to sustainable development in developing countries. This is what still motivates me: that the CDM is still developing. In the past three years, we have seen that a number of new project types and new modalities for bundling small projects with high development benefits have been approved.
KB: Can you give examples where other developing countries have benefited from implementing the CDM?
KD: Well, I think that the most prominent examples are China and India, which are major players in the CDM. Along with CDM projects, innovative technologies are also being introduced. The CDM is a market instrument and it has really helped build renewable energy industries in these countries.
KB: As you’ve so aptly put it, the CDM is a process. What are the current caveats of this process?
KD: There is still a lot of struggle with the methodologies to calculate emission reductions and to demonstrate additionality. This applies in particular to energy efficiency projects.
For some project types the requirements for baseline calculation are very strict and thus hamper project development. I think in particular the high upfront costs for project development are a major obstacle.
Note: The concept of ‘additionality’ is a crucial feature of an approvable CDM project: the project must establish that the planned emission reductions would not occur without the additional financial incentive provided by emission reductions credits. That means, as Ms. Dietrich put it, that a CDM activity is additional only “if greenhouse gas (GHG) emissions are reduced below those that would have occurred in the absence of the registered CDM project activity”.
KB: What are the challenges that host countries trying to develop CDM projects should watch out for, in your opinion? Which do you think Pakistan could particularly prepare for?
KD: I think that for the host countries (developing countries that host CDM projects), the CDM is ideal to promote renewable energies and energy efficiency. In particular in rural electrification with renewable energies (not grid connected), there should be a huge potential to develop CDM projects. In the textile sector there is potential for fuel switching measures, improvement of boilers and steam optimisation systems.
KB: In your opinion, how has CDM already proven itself as a mechanism to contribute to sustainable development? Can you think of specific examples?
KD: There are many examples and in particular the so-called Gold Standard CDM projects fulfil the sustainable development objective of the CDM. The Gold Standard is a premium label for CDM projects with high development benefits; projects that have been established by NGOs. It can be applied to renewable energy and end-user energy efficiency projects only. Off-grid rural electrification with renewable energy is a typical example.
Note: A little bit more about the Gold Standard from Ms. Dietrich’s work: Project developers can also try to get into the premium CER market for small projects with high development benefits. The Gold Standard (GS) Foundation offers a quality label to CDM and voluntary offset projects, fetching premium prices. Renewable energy and energy efficiency projects with sustainable development benefits are eligible. The Gold Standard is endorsed by over 38 non-governmental organizations worldwide.
How the GS emerged: Besides the Kyoto market, other actions taken to reduce greenhouse gas emissions are being verified and traded. Voluntary markets for emissions reductions that are exempt from the provisions of the Kyoto Protocol are developing rapidly. Companies are more and more concerned about their environmental impact and tend to neutralise activities they cannot avoid, for example flying. They see voluntary offsetting as part of their corporate responsibility and/or as part of their image strategy. Emission offsets in this category are usually verified by independent agents and are commonly referred to as Verified Emission Reductions (VERs).
Demand for both types of credits exists. The mid-2008 market price for the various risk levels of CERs ranges from 8-12 Euros for medium-risk forwards, 12-15 Euros for low-risk forwards, 13-18 Euros for registered projects and 16-22 Euro for issued CERs. The price for VERs is considerable lower and is 3-4 Euros.
However, the premium price offered for issued Gold Standard VERs is between 5 – 6 Euros while for GS CER, prices range between 12-14 Euros. In addition, the cost of developing a GS CDM project tends to be lower than the cost of developing a CDM project for the Kyoto market.
KB: Are there any universal thoughts or advice you might want to share with companies in Pakistan who are interested in pursuing CDM projects?
KD: Pakistan is a late entrant into the CDM arena and it can benefit a lot from others’ experiences. I think that Pakistani companies should consider, carefully, with whom they are going to develop their CDM project; or even consider developing it alone provided that they have the funds.
KB: Given current trends, where do you think Pakistan will be in the global CDM marketplace ten years from now? Alternatively, how long will it take us to reach the potential you’ve seen here – again, assuming existing trends?
KD: To date, Pakistan has one registered CDM project and I think about another eight are in the validation stage. A number of stakeholders are currently actively building capacities for CDM project development. I am sure we will see a lot more in the coming year and I am happy to contribute to that development.
