Industry calls for wider standardised baselines for CDM

CDM would be boosted by the introduction of standardised baselines, say experts

Increased use of standardised baselines for Clean Development Mechanism (CDM) projects would motivate increased investment and reduce risk for project developers, according to a report by carbon offset specialists Perspectives for the UK's Department for International Development (DFID).

Baselines describe the amount of emissions that would have been produced if the CDM project had not been built to prevent them. Currently around 120 baselines exist, if some of them were standardised then this would make the application of methodologies much simpler.

The Perspectives report suggests the use of performance standards, a form of standardised baselines used to allocate emission reduction credits based on best-performing companies. In the case of CDM, a performance standard approach would not only standardise the complex and often subjective nature of CDM baseline setting, it would also help clarify additionality demonstration, an area that has provoked controversy in the past, says the report.

Alexander Sarac, general counsel at UK-based carbon origination company EcoSecurities, says standardised baselines could increase the number of projects that can participate in CDM.
"This move wouldn't facilitate new types of projects but it would allow a greater number to be processed because developers could potentially submit more projects for registration and the Secretariat and Executive Board would be able to process these more efficiently."

Another benefit of standardised baselines would be reduced risk for project developers, says Sarac. "Similarly for a project's developer you'd be keener to invest in many more projects than is currently the case because you can assess the success of the project more easily and reduce the risk involved," he adds.

The structure of the CDM has come under intense pressure to reform in recent years. Market participants have lobbied for procedural reform, including increased transparency and the introduction of an appeals process, and material reform, of which the standardisation of baselines has been a key bugbear.

Sarac says the question of reform is vital to helping eliminate post-2012 uncertainty. "The ability of the CDM to be open to reform measures will signal to the market whether or not the system is capable of dealing with the demands of climate change and its stakeholders. It will also indicate whether it will be capable to facilitate increased investment into greenhouse gas emission reduction projects on a much larger scale," he says.

However, according to Mahua Acharya, chief strategy officer at Indian carbon project developer Emerging Ventures, this move will not be enough to combat uncertainty over whether CDM is going to exist post-2012.

"Standardised baselines will ease project flow, reduce subjectivity and promote transparency in the system in a much better way than the project based, second guessing of investor motivations we have today," she says. "I think they will make life easier but whether this will boost investment in the face of uncertainty, I don't think so. Price drives investment and to the extent that post 2012 market is unclear and prices low, investment still faces hurdles," she says.

Emmanuel Fages, head of carbon origination and trading at French carbon development company Orbeo, agrees that such a reform will not be sufficient to combat future uncertainty. "It does nothing to remove the post-2012 uncertainty," he says. "This uncertainty stems from the fact that we do not know which kind of projects will be accepted in which markets. The use of standardised baselines does not give you an answer on this. It reduces the costs and improves the economics of your projects, but does not ensure anything on the revenue side."

CDM projects, devised as part of the Kyoto Protocol, involve developing emission reduction projects in developing countries. In return for the investment, the projects generate Certified Emission Reductions (CERs), which can be traded on the European Union's Emissions Trading Scheme (EU ETS).