Sutter & Parreño_Does the Current CDM Deliver Its Sustainable Development Claim an Analysis of...

8/12/2019 Sutter & Parreo_Does the Current CDM Deliver Its Sustainable Development Claim an Analysis of Officially Regist

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Does the current Clean Development Mechanism (CDM)

deliver its sustainable development claim? An analysisof officially registered CDM projects

Christoph Sutter &Juan Carlos Parreo

Received: 14 February 2006 /Accepted: 11 April 2007 / Published online: 7 July 2007# Springer Science + Business Media B.V. 2007

Abstract This article presents an analytical framework for analyzing Clean Development

Mechanism (CDM) projects in terms of their contribution to employment generation, equal

distribution of CDM returns, and improvement of local air quality. It assesses 16 officially

registered CDM projects with regard to whether they fulfill the two objectives required by

the Kyoto Protocol: greenhouse gas emission reductions and contribution to sustainable

development in the host country. While a large part (72%) of the total portfolios expected

Certified Emission Reductions (CERs) are likely to represent real and measurable emissionreductions, less than 1% are likely to contribute significantly to sustainable development in

the host country. According to our analysis, there are currently no UNFCCC registered

CDM projects that are likely to fulfill the Kyoto Protocols twofold objective of

simultaneously delivering greenhouse gas (GHG) emission reduction and contributing to

sustainable development.

1 Background: the problem of the twin objective of the CDM

The Clean Development Mechanism (CDM) was designed with two objectives: To

contribute to local sustainable development in the host country and to assists Annex-I

countries to achieve their emission reduction targets in a cost-efficient manner (UNFCCC

Climatic Change (2007) 84:7590

DOI 10.1007/s10584-007-9269-9

C. Sutter

South Pole Carbon Asset Management, Technoparkstrasse 1, 8005 Zrich, Switzerland

Present address:

J. C. Parreo

Schuitenweg 33, 2586 AE Den Haag, The Netherlands

[email protected]

Present address:

C. Sutter (*)

Zrichstrasse 123, CH-8700 Ksnacht, Switzerland

e-mail: [email protected]


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1997). The CDM inherited its twin objective from the two main instruments that were

merged into the CDM. The sustainable development objective originates from the proposed

Clean Development Fund (CDF), whereas the objective of cost-efficient emission

reductions was the main driver behind the concept of Joint Implementation (JI). As a

consequence of the amalgam, the CDM was given a twin objective. Hence, the question

rose: Is it possible to fulfill both these objectives through one single mechanism? Sutter

(2003) identified a trade-off between the two objectives of the CDM in favor of the cost-

efficient emission reductions goal.

The Marrakech Accords affirm that it is the host Partys prerogative to confirm whether

a clean development mechanism project activity assists it in achieving sustainable

development (UNFCCC 2002). Consequently, non-Annex I countries can define the

sustainable development requirements for CDM projects in their country according to their

own wishes. At the same time, most countries will not have the market power to

considerably influence the global market price for emission reductions. Competition amongnon-Annex I parties in attracting CDM investments could, therefore, create an incentive to

set low sustainable development standards in order to attract more projects with low

abatement costs. This could lead to a race to the bottom in terms of sustainable

development standards with non-Annex I parties undercutting each other to attract CDM

investments (Kelly and Helme 2000), thereby weakening the sustainable development

objective.

The absence of international sustainable development standards alongside a highly

competitive supply side of the CDM is likely to cause a trade-off in favor of the cost-

efficient emission reduction objective. Neither Annex I countries nor single non-Annex I

parties have direct incentives to implement strict sustainable development criteria (Table1).Figure1 shows the theoretical and highly hypothetical distribution of CDM projects that

would be required if no trade-off existed. Absence of a trade off between abatement costs

and sustainable development objectives would only be possible if all projects were located

on a strictly decreasing function in the cost-sustainable development space.

Such a clear correlation could not been described for CDM projects so far. If it is

assumed that such a strictly decreasing function does not exist within the worldwide pool of

potential CDM projects,1 then, a trade-off between the two objectives of the CDM is likely

to exist.

This paper analyzes the first 16 registered CDM projects to see whether a trade-offbetween objectives exists.

Table 1 Overview of sustainable development criteria and respective indicators as applied in this study

Category Criterion Indicator

Economic

development

Employment Generation Additional person month per CER, compared to

baseline scenario of the projectSocial development Equal Distribution of

Project Return

Ownership structure of project activity

Environmental

development

Air Quality Change of air pollutants emission relative to baseline

1Empiric data that supports this intuition can be found, for example, in Sutter et al. ( 2001). In fact, the

authors show that some of the projects analysed showed a very high degree of sustainable development but at

the same time enormous abatement costs.

76 Climatic Change (2007) 84:7590


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2 Methodology of evaluation

2.1 Theoretical background

The Assessment of CDM projects, on the basis of their fulfillment of the two objectives of

the CDM, is based on the methodology Multi-Attributive Assessment of CDM (MATA-

CDM). This methodology was introduced by Sutter (2003) to evaluate the contribution ofCDM projects to sustainable development in host countries and is based on the Multi-

Attribute Utility Theory (MAUT).2

The objective of MATA-CDM is to generate a holistic overview assessment of the

sustainable development contribution of CDM projects rather than a strictly scientific

evaluation of single parameters. It draws from various disciplines and is designed to assist

decision makers, aiming at being accurate and practical at the same time.

Figure 2 shows the five assessment steps and the central equation of MATA-CDM to

compute the overall utility of CDM projects. The formula presents the weighted sum of

utilities of the assessment criteria.

There are no fixed sets of assessment criteria within MATA-CDM; they are to be

identified in the first step. Since sustainable development is a very complex concept, a good

balance between manageability and scope should be found when selecting the criteria.

Consequently, evaluators should be aware of the normative nature of criteria selection. The

Contribution tosustainable development

Market price forGHG emissionsreductions

0 / 0

CER abatement costs[$ / t CO2]

-

+

- +

Fig. 1 Theoretical, highly hypothetical distribution of CDM projects (indicated by squares) in the cost-

sustainable development space, which would ensure no trade-off between the twin objective of CDM

2For an introduction and overview of MAUT, see e.g. De Montis et al. 2000or Scholz and Tietje2002.

Climatic Change (2007) 84:7590 77


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tool allows for a combination of criteria from different disciplines, as in this case from

economics, social sciences, and natural sciences. However, mapping contributions to

sustainable development by selected indicators remains a simplified construction of reality

and results should be interpreted accordingly.

2.2 Indicators used for the assessment

The advantage of MAUT is that indicators can be measured in the units that best suit the

nature of each specific criterion. The concept of utility allows the quantities to be

normalized with different units and aggregated into a single value. All indicators are

measured against a reference case the so called baseline. For this study, the same baseline

scenarios have been used as defined in the validated and registered Project Design

Documents (PDDs).3

Each criterion selected during Step 1 of MATA-CDM must be specified and

supplemented with a clearly defined and assessable indicator. Indicators measure the extent

to which a CDM project meets the sustainable development (SD) criteria. The set of criteria

used for this study is shown in.

3Defining baseline scenarios is a complex and much debated process. The purpose of this paper is not to

elaborate on various baseline possibilities. Therefore, baseline scenarios as registered at UNFCCC were used

for the evaluated projects.

( ) ( )[ ]1

n

i i i

i

PU P w u c

=

=

Aggregation andinterpretation of results

Step 5:

Assessment of CDMproject

Step 4:

Weighting the criteriaStep 3:

Defining indicators2a: Specifications ofindicators2b: Utility functions ofindicators

Step 2:

Identification ofsustainability criteria

Step 1:

Steps of MATA-CDM

Aggregation andinterpretation of results

Step 5:

Assessment of CDMproject

Step 4:

Weighting the criteriaStep 3:

Defining indicators2a: Specifications ofindicators2b: Utility functions ofindicators

Step 2:

Identification ofsustainability criteria

Step 1:

Steps of MATA-CDM

= Single utility of criterion iUi= Sustainability criterion iCi

= Overall UtilityU= Weighting of criterion iWi

= CDM ProjectP

= Single utility of criterion iUi= Sustainability criterion iCi

= Overall UtilityU= Weighting of criterion iWi

= CDM ProjectPLegend:

Fig. 2 Steps involved in MATA-CDM and its central equation to compute the overall utility of CDM

projects



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In the following section the details regarding the indicators and their utility functions are

presented. In order to make the utility function more manageable for decision makers, their

values are rated with three letters: A, B and C. Thus, arithmetical operations will be

conducted with the numbers and the letter representation allows for a better communication

of how projects contribute to sustainable development. Such a presentation of ratings ismore manageable among decision makers and other stakeholders.

2.2.1 Employment generation

It is widely agreed that employment generation and poverty reduction are strong

components of sustainable development (United Nations 2005). Thus, CDM projects are

evaluated in regard to the amount of employment they generate measured in person months

during construction and operation of the projects and expressed as person month per 1,000

CERs. The formula to calculate employment generation (EG) is as follows:

JPJB

CERpEG person months per 1;000 CERs

where JP = the total amount of person months created by the project, including the

construction and operation phases; JB = the total amount of person months created in the

baseline case; CERp = Emission Reductions (1,000 CERs)

For the purpose of this assessment, the projects will be qualified as shown in Table 2:

2.2.2 Distribution of CER returns

To assess the likely distribution of CER returns, the ownership structures of project

activities were analyzed. Evaluation of the ownership structure for CDM projects was

developed from the theoretical perspective of the Normative Stakeholder Approach

(Mygind 2004). It has evolved into the Analytical Shareholder Approach, where specific

weight, benefits and rights of the different stakeholders are considered (Mygind 2004).

Consequently, the distribution of power and benefits among stakeholders of a CDM project

activity can be deduced from its ownership structure.

Several ownership structures can be found in the literature, where ownership iscategorized as: state, international, individuals, financial, and non-financial (Bhren and

degaard2001), or in simpler models as: state, private and foreign. It is also stated that the

ownership has an effect on wage interception and rent sharing, based on evidence that the

share of rents taken by workers in local companies tend to be higher that the ones working

in foreign companies (Dobbelaere 2004). For the purpose of the study, the ownership

structures of the projects are classified in Table3:

Table 2 Utility and rating of criterion employment generation (adapted from Sutter2003)

Scale of indicator Utility Rating

Employment generation over 10 person month per 1,000 CERs 1 A

Employment generation between 1 and 10 person month per 1,000 CERs 0.5 B

Employment generation under 1 person month per 1,000 CERs 0 C

Employment decrease between 1 and 10 person month per 1,000 CERs 0.5 D

Employment decrease over 10 person month per 1,000 CERs 1 E



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2.2.3 Improvement in local air quality:

To measure the environmental development generated by a CDM project activity, improvementin local air quality is used as an indicator. Air quality is regarded in the Millennium

Development Goals as a means for ensuring environmental sustainable development (United

Nations2005). Projects are thus evaluated based on the effects of pollutants emitted into the

atmosphere on the local population. For this the scale Table 4is used:

2.2.4 Likelihood of real emission reductions

MATA-CDM was used to evaluate whether the goal of sustainable development is met and to

what extent. A measure of the likelihood that the emission reductions claimed by the project

activity are really occurring is required to evaluate the emission reduction objective (Table 5).

To do this a rating system was applied which was not included in the sustainable development

rating of the project activities but was an indicator for the emission reduction objective.

Emission reduction calculations of CDM project activities are defined with the help of a

baseline scenario, which is by definition counterfactual as it describes what would have

happened in the absence of the project activity. Therefore, it is not possible to say with 100%

certainty whether a particular CER from a CDM project activity truly reflects real emission

reductions, thus is additional.4 However, a likelihood for emission reductions to be real and

additional can be indicated. We use the expected profitability increase of a project thanks to

the CDM registration as the indicator for this likelihood. The chosen profitability measure isthe projects Internal Rate of Return (IRR), hence the indicator is defined as IRR = IRR of

CDM project IRR of baseline. If the CDM makes a significant change in profitability, i.e.,

project shows a largeIRR, then there is a high likelihood that the project is truly additional.

On the other hand, a CDM project showing only a slight IRR increase (or even a decrease) is

likely to be implemented even without the CDM. Three project categories were identified

each expressing the likelihood for real and additional CERs:

It should be noticed that this indicator includes remarkably high IRRs. This is due to the

high profitability that some CDM projects can achieve related to the necessary investments

and are also considerably affected by the global warming potential (GWP)5

of certaingases. For example, each tonne of reduced HFC-23, whose GWP is 11,700, equals to

11,700 tonnes of CO2equivalents and thus increases the profits from this type of projects.

4On the different concepts of additionality see e.g. Greiner and Michaelowa (2003).

Table 3 Utility and rating of criterion distribution of CERs returns

Scale of indicator Utility Rating

Largest fraction of profits from CER revenues flows to the poorer 50% of host

country population (e.g. project owner is small producer association).

1 A

Largest fraction of profits from CER revenues flows to the host country population

(e.g. project owner is a corporation of the host country, host country owned entity).

0.5 B

Largest fraction of profits from CER revenues flows to people outside the host

country (e.g. project owner is a internationally hold corporation).

0 C

Project activity reduces revenues of the host country. 0.5 D

Project activity reduces revenues of the poorer 50% of host country population. 1 E

5A measurement technique to define the relative contribution of each GHG to atmospheric warming. (IPCC,

http://www.grida.no/climate/ipcc/emission/168.htm).

http://www.grida.no/climate/ipcc/emission/168.htmhttp://www.grida.no/climate/ipcc/emission/168.htm


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2.3 Assessed CDM projects

The 16 CDM projects assessed in the analysis correspond to the projects registered at

UNFCCC as of August 30, 2005 (UNFCCC2005; Table6). Most of the information wasobtained from the Project Design Documents (PDDs) available on the UNFCCC web site

and scientific literature on different project types. As per U.N. rules, all PDDs have been

validated by independent validators (Designated Operational Entities, DOEs). Additionally,

a survey was sent to all the 16 project developers for detailed questions about the

sustainable development criteria discussed above. Four out of the sixteen responded. The

projects were evaluated on the basis of their contribution to sustainable development as per

the three criteria: employment generation, distribution of CER returns, and local air quality.

The portfolio evaluated consists of nine renewable power projects, three landfill gas

recovery projects, two Trifluoromethane (HFC-23) reduction projects, one fuel switchproject and one energy efficiency project applied in housing. The portfolio includes nine

small-scale and seven large scale project activities in nine countries.

3 Results

3.1 Employment generation

Our analysis of the approved CDM projects shows that the current CDM portfolio has a minor

effect on employment in host countries. Ninety-nine percent of the CERs come from projectsthat are rated C regarding employment generation. In fact, the portfolios average CER

generates around 235 person months of additional employment per projects with an A rating,

3.5 for those with a B rating and 0.1 for those with a C rating, resulting in a portfolio average of

2.3 person month per 1,000 CERs. This low average is the result of large-volume projects such

as Trifluoromethane (HFC-23) decomposition projects, which are end-of-the-pipe solutions and

do not have a substantial employment effect. On the other end of the spectrum, the portfolio

includes a few small-scale projects in the biomass power generation sector that show very high

employment effects (over 300 person month per CER; Tables 7 and8).

Table 5 Scale of indictor likelihood of real emission reductions and corresponding additionality rating

Scale of indicator Additionality rating

IRR>100% A

5%


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Table 6 Overview of portfolio of CDM project activities approved by August 30, 2005

Title Host

country

Other parties Small

scale

Technology CERs/

7 years

Methodology

NovaGerar LandfillGas to energy

Project

Brazil World Bank Netherlands Clean

Development

Facility

Nosmall

scale

Landfill gasextraction,

collection,

power

generation and

flaring

4,690,931 AM0003

Rio Blanco Small

Hydroelectric

Project

Republic of

Honduras

Ministry of

Foreign Affairs

Finland

Small

Scale

Run of river

hydropower

station.

124,600 AMS-I.D.

Project for GHG

emission reduction

by thermal

oxidation of HFC

23 in Gujarat

Government

of India

Rabobank, The

Netherlands.

Sumitomo

Corporation Japan

No

small

scale

HFC 23

Thermal

oxidation and

combustion

gases treatment

21,000,000 AM 0001

HFC

Decomposition

Project in Ulsan

Republic of

Korea

Japan No

small

scale

HFC 23

Thermal

oxidation and

combustion

gases treatment

9,800,000 AM0001

Cuyamapa

Hydroelectric

Project

Republic of

Honduras

NA Small

Scale

Run of river

hydroelectric

project

269,864 AMS-I.D.

e7 Bhutan Micro

Hydro Power CDM

Project (e7Bhutan

Project)

Kingdom of

Bhutan

Japan Small

Scale

Run of river

hydropower

station

3,668 AMS-I.A.

Biomass in

Rajasthan

Electricity

generation from

mustard crop

residues

Government

of India

Netherlands

Government

SenterNovem

Small

Scale

Biomass

powered

generation

plant

219,618 AMS-I.D.

Cortecito and SanCarlos

Hydroelectric

Project

Republic ofHonduras

NA SmallScale

Run of riverhydroelectric

project

262,262 AMS-I.D.

Santa Cruz landfill

gas combustion

project

Bolivia NA No

small

scale

Landfill gas

extraction,

collection and

flaring

578,760 AM0003

Huitengxile

Windfarm Project

PR China Netherlands

Government

SenterNovem

No

small

scale

Wind Turbines 360,003 AM0005

Graneros Plant Fuel

Switching Project

Chile Electric Power

Development

Japan Co.

No

small

scale

Change of

fossil fuels by

natural gas

136,066 AM0008

5 MW Dehar Grid-

connected SHP in

Himachal Pradesh

Government

of India

NA Small

Scale

Run of river

hydroelectric

project

114,618 AMS-I.D.



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3.2 Distribution of project returns

The majority of projects (13 out of 16) and the majority of CERs generated by the CDM

project portfolio (76%) have a B-rating for the distribution of project returns. Eleven of theB-rated projects are owned by local private companies, while two are government owned

Clarion BiomassPower Project

Government ofIndia

NA SmallScale

High pressuresteam turbine

184,100 AMS-I.D.

Salvador da Bahia

Landfill Gas

Management

Project

Brazil Showa Shell

Sekiyu K.K.

(Japan); Shell

Trading

International Lted.

(UK)

No

small

scale

Landfill gas

extraction,

collection and

flaring

4,652,718 AM0002

La Esperanza

Hydroelectric

Power

Republic of

Honduras

Italy. International

Bank for

Reconstruction

and Development

Small

Scale

Run of river

hydropower

station

259224 AMS-I.D.

Kuyasa low-cost

urban housing

energy upgrade

project, Khayelitsha

South

Affrica

NA Small

Scale

Energy

efficiency

measures

46,060 AMS-I.C.,;

II.C.,III.E.

Source: PDDs available atcdm.unfccc.int

Table 7 Estimated employment generation by registered CDM project activities

Project analysis Estimated employment effect

(Person month/1,000 CER)

Employment

rating

NovaGerar Landfill Gas to energy Project 0.030 C

Rio Blanco Small Hydroelectric Project 0.225 C

GHG emission reduction by thermal oxidation

of HFC 23 in Gujarat

0.013 C

HFC Decomposition Project in Ulsan 0.029 C

Cuyamapa Hydroelectric Project 0.253 C

e7 Bhutan Micro Hydro Power CDM Project 1.908 B

Biomass in Rajasthan Electricity generation

from mustard crop residues

165.742 A

Cortecito and San Carlos Hydroelectric Project 0.184 C

Santa Cruz landfill gas combustion project 0.000 C

Huitengxile Windfarm Project 0.005 C

Graneros Plant Fuel Switching Project 0.000 C

5 MW Dehar Grid-connected SHP in Himachal Pradesh 1.832 B

Clarion Biomass Power Project 304.183 A

Salvador da Bahia Landfill Gas Management Project 0.030 C

La Esperanza Hydroelectric Power 0.275 C

Kuyasa low-cost urban housing energy upgrade


6.687 B

Source: PDDs available atcdm.unfccc.int

Table 6 (continued)

Title Host

country

Other parties Small

scale

Technology CERs/

7 years

Methodology

http://www.unfccc/cdmhttp://www.unfccc.int%2C%20own%20calculations/http://www.unfccc.int%2C%20own%20calculations/http://www.unfccc/cdm


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projects. The assessment methodology assumes that when a project is owned by a localprivate company or by the government, the largest fraction of profits from CER revenues

paid to the project participants flows to the host countrys population (Tables 9 and 10).

Twenty-three percent of all CERs are generated by projects owned by transnational private

companies, where it can be assumed that the largest fraction of profits from CER revenues

flows to people outside the host country. Only 0.3% of the portfolios CERs are A-rated

since their revenues are likely to flow to the poorer 50% of the host country population.

These are the most likely projects to directly contribute to poverty reduction.

Table 9 Ratings of registered CDM project activities regarding distribution of CER revenues

Project analysis Ownership of project Distribution

rating

NovaGerar Landfill Gas to energy Project Private company local B

Rio Blanco Small Hydroelectric Project Local small producer

association

A

GHG emission reduction by thermal oxidation

of HFC 23 in Gujarat

Private company local B

HFC Decomposition Project in Ulsan Private company

transnational

C

Cuyamapa Hidroelectric Project Private company local B

e7 Bhutan Micro Hydro Power CDM Project Government B

Biomass in Rajasthan Electricity generation from

mustard crop residues

Private company local B

Cortecito and San Carlos Hydroelectric Project Private company local B

Santa Cruz landfill gas combustion project Private company local B

Huitengxile Windfarm Project Private company local B

Graneros Plant Fuel Switching Project Private company

transnational

C

5 MW Dehar Grid-connected SHP in Himachal Pradesh Private company local B

Clarion Biomass Power Project Private company local B

Salvador da Bahia Landfill Gas Management Project Private company local B

La Esperanza Hydroelectric Power Private company local B

Kuyasa low-cost urban housing energy upgrade


Government B

Source UNFCCC, own classifications

Table 8 Estimated employment generation by registered CDM portfolio analysis

Portfolio analysis CERs from first

7 years

Percent of portfolio

(%)

Average person month/1,000

CER

CERs with employmentA-rating

403,718 0.9 235.0

CERs with employment

B-rating

164,346 0.4 3.5

CERs with employment

C-rating

42,134,428 98.7 0.1

Total CERs in portfolio 42,702,492 100 2.3

Source: PDDs available athttp://www.unfccc.int, own calculations

http://www.unfccc.int%2C%20own%20calculations/http://www.unfccc.int%2C%20own%20calculations/


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3.3 Improvement of local air quality

Regarding improvements on local air quality per generated CER, three different groups of

projects within the current CDM project portfolio were identified. First, there are projects

that do not considerably reduce major local air pollutants. By volume of CERs this is thelargest group (96%) and includes projects that mainly eliminate Trifluoromethane (HFC-

23), and methane (CH4), which were given C-ratings regarding local air quality (see

Tables11and 12). Second are projects that either replace fossil intensive grid electricity or

undertake a fuel switch mainly from coal to natural gas. They account for 3% of total CERs

and were given a B-rating, which corresponds to considerable decrease in odor and/or

moderate decrease in respiratory disease pollutants or carcinogens. Finally, the remaining

1% of CERs comes from small-scale project activities that received an A-rating for local air

quality because they replace electricity generated by diesel generators.

3.4 Likelihood of real emission reductions

In contrast to the low ranking of most CERs in the three sustainable development criteria,

the majority (72%) of CERs in the current CDM portfolio got an A-ranking for

additionality, this means that there is a high likelihood that the emission reductions happen

only due to the CDM component of the project. This result is influenced by the fact that the

largest two projects (both HFC-23 reduction projects) had an A-rating additionality. In

Table 10 Portfolio analysis of registered CDM project activities regarding distribution of CER revenues

Portfolio analysis CERs from first 7 years Percent of portfolio (%)

Total CERs with distribution A-rating 124,600 0.3

Total CERs with distribution B-rating 32,641,826 76.4Total CERs with distribution C-rating 9,936,066 23.3

Total CERs in portfolio CERs 42,702,492 100

Source UNFCCC, own classifications

Table 11 Projects and portfolio rating on local air quality improvementProject analyis Improvement in local air quality Air quality rating

NovaGerar Landfill Gas to energy Project Mainly decrease in CH4 and odor C

Rio Blanco Small Hydroelectric Project Decrease of diesel generator pollutants A

GHG emission reduction by thermal oxidation of HFC 23 in Gujarat C

HFC Decomposition Project in Ulsan C

Cuyamapa Hidroelectric Project Decrease of fossil power plant pollutants B

e7 Bhutan Micro Hydro Power CDM Project Decrease of diesel generator pollutants A

Biomass in Rajasthan Electricity generation from mustard crop residues Decrease of fossil power plant pollutants B

Cortecito and San Carlos Hydroelectric Project Decrease of fossil power plant pollutants B

Santa Cruz landfill gas combustion project Mainly decrease in CH4 and odor C

Huitengxile Windfarm Project Decrease of fossil power plant pollutants B

Graneros Plant Fuel Switching Project Private company transnational C

5 MW Dehar Grid-connected SHP in Himachal Pradesh Decrease of diesel generator pollutants A

Clarion Biomass Power Project Decrease of diesel generator pollutants A

Salvador da Bahia Landfill Gas Management Project Mainly decrease in CH4 and odor C

La Esperanza Hydroelectric Power Decrease of fossil power plant pollutants B

Kuyasa low-cost urban housing energy upgrade project, Khayelitsha Reduction in NOx and SOx at house level B

Decrease in HFC23



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contrast, the majority of projects (11 out of 16) had a low probability of being additional

and was rated C for additionality. For details, see Tables 13and14.

4 Synthesis and conclusions

After discussing the different evaluation criteria separately, we summarize the project ratings in

Table15. Each project was given three ratings in the sustainable development field and one

additionality rating expressing the projects likelihood to generate real emission reductions.

To synthesize the findings, the three sustainable development criteria have been

integrated according to Step five of MATA-CDM, using equal weightings as shown in

Table 16. Together with the indicator for the likelihood of real emission reductions (the

additionality rating) the average sustainable development rating makes possible and

assessment of CDM projects for meeting the twin objective of the CDM.

The two indicators allow us to position all projects of the CDM portfolio in the two-

dimensional space of their contribution to sustainable development versus the likelihood ofemission reductions (Fig.3). The size of dots plotted in Fig. 3represents the CER volume

of the particular projects. Projects that contribute to both objectives of the CDM to

Table 12 Portfolio rating on local air quality improvement

Portfolio analysis CERs from first 7 years Percent of portfolio (%)

Total CERs with additionality A-rating 426,986 1.0

Total CERs with additionality B-rating 1,417,031 3.3Total CERs with additionality C-rating 40,858,475 95.7


Table 13 Additionality rating of CDM projects and CER portfolio

Project analysis Estimated

IRR

Additionality

rating

NovaGerar Landfill Gas to energy Project 90.0% B

Rio Blanco Small Hydroelectric Project 1.0% CGHG emission reduction by thermal oxidation of HFC 23 in Gujarat 290.0% A

HFC Decomposition Project in Ulsan 190.0% A

Cuyamapa Hidroelectric Project 4.0% C

e7 Bhutan Micro Hydro Power CDM Project 1.0% Ca

Biomass in Rajasthan Electricity generation from mustard crop residues 2.6% C

Cortecito and San Carlos Hydroelectric Project 4.0% C

Santa Cruz landfill gas combustion project 70.0% B

Huitengxile Windfarm Project 1.0% C

Graneros Plant Fuel Switching Project 5.0% Ca

5 MW Dehar Grid-connected SHP in Himachal Pradesh 2.1% C

Clarion Biomass Power Project 2.0% C

Salvador da Bahia Landfill Gas Management Project 50.3% B

La Esperanza Hydroelectric Power 5.3% C

Kuyasa low-cost urban housing energy upgrade project, Khayelitsha 3.0% Ca

aIncluding CDM transaction costs, a lower IRR is estimated for very small project activities compared to the

baseline case



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sustainable development of the host country as well as to emission reductions would be

located in the top-right corner of the figure. However, the results show that the top-right

area of the figure is empty. Top-rated projects have either a high likelihood of producing

additional and therefore real emission reductions or contribute to the sustainable

development of the host country (see also Table 17). No CDM project activities (fromthe evaluated sample) that has a high rating for both additionality and sustainable

development was registered. This means that projects registered by August 2005 might

Table 15 Rating of the different indicator; for sustainable development indicators numeric values as well as

responding A,B,C ratings are presented

Project title Employment

generation

Distribution

of CERs

returns

Improvement

of local air

quality

Total SD

rating

Likelihood of

emissions reductions

NovaGerar Landfill Gas C 0.0 B 0.5 C 0 0.2 B

Rio Blanco Small

Hydroelectric

C 0.0 A 1 A 1 0.7 C

Thermal oxidation of HFC

23 in Gujarat

C 0.0 B 0.5 C 0 0.2 A

HFC Decomposition

Project in Ulsan

C 0.0 C 0 C 0 0.0 A

Cuyamapa Hidroelectric C 0.0 B 0.5 B 0.5 0.3 C

e7 Bhutan Micro Hydro

Power

B 0.5 B 0.5 A 1 0.7 C

Biomass in Rajasthan A 1.0 B 0.5 B 0.5 0.7 C

Cortecito and San Carlos

Hydro.

C 0.0 B 0.5 B 0.5 0.3 C

Santa Cruz landfill gas C 0.0 B 0.5 C 0 0.2 B

Huitengxile Windfarm C 0.0 B 0.5 B 0.5 0.3 C

Graneros Plant Fuel

Switching

C 0.0 C 0 C 0 0.0 C

5 MW Dehar

Grid-connected

B 0.5 B 0.5 A 1 0.7 C

Clarion Biomass Power

Project

A 1.0 B 0.5 A 1 0.8 C

Salvador da Bahia Landfill

Gas

C 0.0 B 0.5 C 0 0.2 B

La Esperanza

Hydroelectric Power

C 0.0 B 0.5 B 0.5 0.3 C

Kuyasa low-cost urban

housing

B 0.5 B 0.5 B 0.5 0.5 C

Table 14 CER portfolio of CDM projects

Portfolio analysis CERs from first

7 years

Percent of portfolio (%)

Total CERs with additionality A-rating 30,800,000 72.1Total CERs with additionality B-rating 9,922,409 23.2

Total CERs with additionality C-rating 1,794,289 4.2




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Table 16 Synthesized results: sustainable development and additionality rating of all registered projects (as

of August 30, 2005)

Project title Sustainability (average

sustainability rating)

Likelihood of real emission

reduction (estimated IRR, %)

NovaGerar Landfill Gas to energy Project 0.17 90

Rio Blanco Small Hydroelectric Project 0.67 1

GHG emission reduction by thermal

oxidation of HFC 23 in Gujarat

0.17 290

HFC Decomposition Project in Ulsan 0.00 190

Cuyamapa Hidroelectric Project 0.33 4

e7 Bhutan Micro Hydro Power CDM

Project*

0.67 1

Biomass in Rajasthan Electricity

generation from mustard crop residues

0.67 3

Cortecito and San Carlos HydroelectricProject

0.33 4

Santa Cruz landfill gas combustion

project

0.17 70

Huitengxile Windfarm Project 0.33 1

Graneros Plant Fuel Switching Project* 0.00 5

5 MW Dehar Grid-connected SHP in

Himachal Pradesh

0.67 2

Clarion Biomass Power Project 0.83 2

Salvador da Bahia Landfill Gas

Management Project

0.17 50

La Esperanza Hydroelectric Power 0.33 5

Kuyasa low-cost urban housing energy

upgrade project, Khayelitsha*

0.50 3

*Due to CDM transaction costs CDM project IRR estimated to be lower than baseline IRR

-0.2

0.0

0.2

0.4

0.6

0.8

1.0

-4.0 -3.5 -3.0 -2.5 -2.0 -1.5 -1.0 -0.5 0.0 0.5 1.0 1.5

Likelihood of real emissions reductions

(log of delta IRR)

Contributiontosustainabledevelopment

(averagesustainabledevelopmentrating)

CDM project size, represented in theamount of CERs

Legend:

High

High

Low

Low

Housing HFC 23

Biomass

Hydro

Hydro

Wind

I

IIIII

IV

LFG

.

Fossil fuel switch

Fig. 3 Registered CDM project activities in the emission reduction sustainable development space. For

graphical purposes (log scale) negative IRR were set to 0.1%



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contribute to one of the two CDM objectives, but neither contributes strongly to both

objectives. In addition, around 25% of all projects have neither a relevant contribution to

sustainable development nor are they likely to generate real emission reductions. Thismeans that they serve neither of the two CDM objectives as stated in the Kyoto Protocol.

If the volume of CERs is considered, a clear tendency of the CDM to deliver real

emission reductions but not to contribute towards host countrys sustainable development

can be observed. The portfolio is dominated by a few large projects with a high likelihood

to reduce emissions but no relevant contribution to host countriessustainable development

(95.7% of CERs volume are located in quadrant II of Fig. 3). This is evidence that the

trade-off is strongly in favor of the cost-efficient emission reduction objective, while

neglecting the sustainable development objective. To conclude, the applied analysis

suggests that currently registered CDM projects may be far from delivering their claims to

promoting sustainable development.

Nevertheless, as indicated in Section3.1, the outcomes obtained here are depending on

the simplification of the concept of sustainable development represented in the selected

indicators. With the addition of different indicators and different normative weightings,

different outcomes may have been obtained.

Designed as a market mechanism, the CDM intends to make use of market forces.

However, so far, only one of the two CDM objectives is measured by the market: emission

reductions are given a price per reduced ton of CO2 equivalent. Currently, contributions to

sustainable development are not well reflected in CER prices. To be able to differentiate

CER prices regarding sustainable development, respective information from underlyingCDM projects has to be made available. The tool presented in this paper aids decision

maker to differentiate between projects as it makes information regarding sustainable

development available. Bringing such information to the market is a basis to differentiate

prices of CERs according to the sustainable development benefits of the underlying

projects. A premium price for CERs from projects with a strong contribution to sustainable

development might increase the share of such projects in global carbon markets.

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Table 17 Distribution of CERs between likelihood of real emissions reductions and contribution to

sustainable development

Likelihood of emissions

reductions

Contribution to

sustainability

Quadrant CERs Percentage

(%)

Projects Percentage

(%)

Low High I 642,936 1.5 4 25

High Low II 40,858,475 95.7 6 38

Low Low III 1,151,353 2.7 4 25

High High IV 49,728 0.1 2 13

Total 42,702,492 100.0 16 100.0



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