1. Possible Development of CDM in the Post-2012 Regime DUAN Maosheng Tsinghua University Beijing, Nov. 19, 2007

2. Outlines • Why CDM/flexible mechanisms • Proposals on future development of CDM • Main considerations under these proposals • Possible way forward

3. Why CDM/flexible mechanisms • To achieve emission reduction targets at lower economic cost • Environmental effects and integrity, not economic or any other concern, should always be the first consideration • Flexible mechanisms, in whatever forms, should always follow this principle • Flexible mechanisms may be used only when necessary and really help to solve the problem • Principles established by the convention should not be compromised

4. Proposals on future development of CDM • Sectoral crediting mechanism (sectoral CDM) • Benchmark: crediting projects with emissions below the benchmark without further additionality test • No-lose target: no penalty in case of higher emissions and trade in case of lower emissions • Cap-and-trade • Policy CDM: crediting emission reduction policy and measures • Technology CDM: crediting selected technologies without additionality test; technology transfer and CERs transfer

5. Sectoral CDM • Benchmark • Similar to current CDM rules, while no additionality test • Crediting activities and no linkage with cap for the whole sector • Setting of the benchmark is crucial while difficult • Suitable for sectors with homogeneous products • No-lose target • Arbitrary targets and not necessarily reflection of efforts • Difficulties in aspects of data collection, quantification of individual efforts and incentives, etc. • Cap-and-trade • A type of targets and no linkage with CDM

6. Policy CDM and Technology CDM • Policy CDM • Additionality test of policies and measures • Quantification of emission reduction considerations • Consistence with the process of policy and measure formulation • Technology CDM • Promotion of technology transfer and emission reduction efforts • Risk reductions for both sides of CER transactions • Additionality assurance through identification of real qualified technologies and setting of baselines • Promotion of additional emission reduction efforts through underlying certainty

7. Main considerations under these proposals • Transaction cost • Distribution issue • Mobilization of investment for emission reduction efforts • Catalyzing technologies • Competence concern • Further reduction of compliance cost • Broader and deep involvement

8. Possible way forward • Sectoral approaches could be a useful attempt for broader involvement when very carefully designed • Sectoral approaches themselves do not necessarily assure the participation of developing countries as some major concerns of developing countries are not addressed automatically • Pledge and review may further limit the participation possibility of developing countries • Technical difficulty, such as data availability, verification possibility and related capacity, could be further major barriers

9. Possible way forward • Major emitting sectors should be chosen • Sectors with homogeneous products should be the first choice • Public and timely availability and verification possibility of data as well as cost should be considered • Electric power sector, iron and steel sector, cement sector, etc. could be possible choices • Different approaches maybe suitable for different sectors

10. Possible way forward • Developing countries have been making mitigation efforts very actively through CDM • Underlying economic incentives could be an impetus for small developing countries, but not for large countries • No political risks as well as additional financial and technical assistance could be an option for enhancing developing country’s mitigation efforts • The demonstration of leadership and feasibility by developed countries should be helpful for developing countries’ further involvement

11. Thanksduanmsh@mail.tsinghua.edu.cn+86 10 6277 2596