The World Bank has expressed concerns over the current and future state of the Kyoto Protocol's Clean Development Mechanism (CDM) market in its recently published report entitled "The State and Trends of the Carbon Market 2008", which will be of particular interest to industry players involved in the development of CDM projects or in the trading of Certified Emission Reduction credits (CERs).
Concerns over the current and future state of the CDM
The World Bank has stressed that the success of the CDM was threatened by its "creaking infrastructure" which is resulting in serious procedural inefficiencies that are preventing the CDM infrastructure to deliver CERs on schedule. In particular, the World Bank has made the following findings:
- out of 3,188 projects currently in the pipeline, 2,022
projects are awaiting validation;
- projects face an average wait of 80 days to go from the
project registration request stage to actual
- it is currently taking market participants up to 6 months
to engage a Designated Operational Entity;
- CDM project registration and CER issuances (CERs can take
up to 2 years to be issued from the time the projects enter
the pipeline) are generally lower and slower than expected
with the result that primary project developers are
encountering delays in implementing and financing
The World Bank is also of the view that the proposals of the European Commission for Phase 3 of the EU Emissions Trading Scheme (EU ETS) have inadvertently created some uncertainty on the future state of the CDM market. In particular, the Commission's proposals currently link the use of CDM and JI credits in Phase 3 of the EU ETS (2013 onwards) to the signing of a post-2012 international agreement on climate change. The Commission's proposals envisage limited use of CERs in Phase 3 of the EU ETS (2013 onwards) up to the remainder of the level that CERs/ERUs are permitted to be used in Phase 2 of the EU ETS (2008 to 2012), unless an international agreement on emission reductions has been reached and is ratified by the EU Commission. The Bank is concerned that this proposal risks slowing down the momentum for the development of project-based mechanisms aimed at tackling climate change.
In its Report, the World Bank also highlighted the following key findings:
- the carbon market was valued at €47 billion in
- €37 billion worth of EU ETS Phase II allowances
and derivative contracts were traded in 2007;
- the CDM accounted for 87% of the volumes and 91% of the
values of emission reduction project-based transactions, with
China expanding its market share of CDM transactions to
To access the World Bank report, please click here.
This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq
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The original publication date for this article was 29/05/2008.