2.3.5 Kyoto Protocol mechanisms and the UNFCCC
The analysis of the literature on the Kyoto Protocol Mechanisms, based on the
preliminary stage of development of the rules for these, suggests that if they
are implemented, the Mechanisms may have potential to affect the transfer of
ESTs. The extent to which Article 4.5 of the UNFCCC has been implemented is
being reviewed by the UNFCCC. Given this evolving process, the IPCC has not
been able to assess this matter.
The Clean Development Mechanism (CDM) and Joint Implementation (JI) can provide
financial incentives for ESTs and influence technology choice. As voluntary mechanisms
they require co-operation among developed and between developed and developing
country Parties as well as between governments, private sector entities and community
Although much about the design and governance of the CDM remains to be resolved,
some notions on the CDM are starting to emerge from a variety of new literature
that has been published since Kyoto:
- The CDM can be a means to build trust and strengthen capacity. It could
strengthen working relations and understanding among partners, private sector,
non-governmental organisations, and governments at various levels to enhance
technology co-operation. Project based crediting could lead to tangible investments
and development of local capacity to maintain the performance of these investments.
These projects could incrementally assist developing countries to achieve
multiple sustainable development objectives (economic development, improvement
of local environmental quality, minimise risk to human health of local pollutants,
and reduce greenhouse gases). Careful project screening and selection, including
host community decision-makers, will assist multiple benefits for all participants.
- There is a need to design simple, unambiguous rules that ensure environmental
performance in the context of sustainable development while also favouring
investment. The multilateral oversight and governance provisions of the mechanism,
and the project basis of transactions, will raise the transaction costs of
investment in CDM projects as compared to mitigation reduction through other
more conventional means (e.g. local options or even within other Annex I countries).
This increases the complexity of the transaction and shaves a portion of the
economic benefit that might otherwise be attained. Critical questions under
this heading have to do with how to determine the additionality of proposed
projects as well as the baseline against which to assess performance and establish
One important distinction is between "bilateral" or "portfolio"
approaches. The bilateral approach is closest to joint implementation programmes
where the host country negotiates directly with the investor about the terms
of the contract. The portfolio approach would allow host (developing) countries
to advance bundles of possible projects that fit with their own sustainable
development objectives. Some authors argue that both models will be needed,
depending on the type of project involved.