The area in which the Kyoto Protocol itself may have greatest implications for technology transfer is in its establishment of the project based mechanisms, Joint Implementation (JI) (Article 6) and the Clean Development Mechanism (CDM) (Article 12). These allow investments in projects that reduce or avoid emissions to generate emission credits (ERUs or CERs respectively), which may be used to contribute towards compliance by an Annex I Party. Features that distinguish these mechanisms from emissions trading are summarised in Table 3.2. This creates an incentive towards climate-friendly investments. In addition, the CDM specifies that a part of the proceeds shall be used to assist vulnerable developing countries adapt to the effects of climate change. In these respects, such mechanisms may offer significant contributions towards technology transfer.
Table 3.2 Main Characteristics of JI/CDM versus Emission Trading (Nondek, 1998) | ||
EMISSIONS TRADING | JI/CDM | |
Compliance | Based on emissions inventories | Based on project baselines |
Reference | National emissions limit | Project baseline |
Transaction costs | Low | Possibly high |
National implementationcost | Possibly high | Low |
Implementation of reductions | Policies and measures | Direct technology investments |
Emission reduction potential | Large | Limited |
Time horizon | 2008-2012 | From 2000 (for CDM) |
Commodity | Allowances | Credits |
The CDM, if well structured, could be a vehicle for transferring ESTs. Though
no specific provision makes reference to technology transfer, a number of features
make the CDM unique. First, the clean development mechanism invites Annex I
Parties to work with developing countries to further sustainable development
and the overall objectives of the Climate Convention. This is possible largely
only by the transfer of ESTs. Assisting Annex I Parties to achieve their emission
reduction obligations through a transfer of "credits" is another objective
of the CDM.
Secondly, the CDM is project based. Certified emission reductions may be generated
through the investment in concrete projects and based on measurable, certifiable
emission performance.
Thirdly, the provisions for governance of the CDM are more specific than for the other mechanisms. The CDM is to be supervised by an executive board, which is likely to be a sub-group of Parties to the Protocol, perhaps with inputs from other constituencies. This will provide oversight and guidance to the implementation of the CDM. The Protocol also calls for independent auditing and verification of project activities. These provisions reveal an effort to ensure transparency and credibility in the final results, and the need for agreement on standardised procedures of performance on which to base certification. They make the design of the mechanism clearly multilateral in nature, involving decisions and consensus among multiple Parties.
Some initial ideas on the CDM are starting to emerge from a variety of new literature and exchanges that have taken place since Kyoto (Aslam 1998 a & b; OECD, 1998a; 1999, Goldemberg, 1998, TERI 1998):
Much about the design and governance of the CDM remains to be resolved. One
important distinction is between "bilateral" or "portfolio"
approaches (Table 3.3). 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 (Siniscalco,
1998; Grubb et. al., 1999) argue that both models will be needed, depending
on the type of project involved.
Table 3.3 Bilateral versus Portfolio Approach to the CDM (Source: Yamin, 1998) | |
BILATERAL APPROACH | PORTFOLIO APPROACH |
Project by project | "Bundling" of projects in portfolios |
Investor-led | Host country-led |
Private sector emphasis | National sovereignty emphasis |
Contribution to emission reductions emphasis | Contribution to sustainable development emphasis |
Proceeds for adaptation unnecessary, seen as additional costs to achieve Article 3 compliance | Proceeds for adaptation seen as necessary to benefit all DCs to increase global participation in Protocol |
May concentrate on countries already benefiting from Foreign Direct Investment | Could allow equity considerations to tailor portfolios to benefit all DCs' mitigation efforts |
Primary purpose of CDM is clearing-house function | Primary purpose of CDM is to obtain best price for CERs, shield hosts from undue pressure; clearing-house function is a necessary feature |
A practical understanding of one way the CDM may relate to technology transfer
may be found in looking at progress made to date by some countries in establishing
technology priorities for investments likely to emerge under the Convention
and the Protocol. The Indian government, for example, has identified three different
types of technologies as priorities for CDM investment (TERI, 1998): grid-connected
photovoltaics; advanced fuel cells; and biomass for power generation. With respect
to baselines, the Indian government has also identified three types: increases
in energy efficiency, renovation and modernisation; introduction of new technologies;
and projects that are currently subject to government incentives and subsidies
(hence additional).
Presumably once a host country has its own vision of what sustainable development
entails given its own national circumstances, it could develop broad guidance
on types of CDM projects that would be acceptable to it. Such guidance could
vary from country to country and possibly by region within a country, depending
on a variety of different parameters (e.g. resource endowment, natural environment,
geography, industrialisation, urbanisation and demographic trends).
This guidance might resemble a national "technology needs assessment,"
one of the ideas that has begun to emerge from discussions under the Convention
on technology transfer (UNFCCC, 1998a and van Berkel et al., 1998). Once a country
has established a vision of its needs for sustainable development and technology,
practical guidance on project types could be developed to fit these objectives.
A portfolio of projects could be offered to international investors, giving
more control to host countries to ensure the value of CDM projects over time
(Yamin, 1998).
An international gathering hosted by the OECD offered some interesting perspectives
and words of caution with respect to the CDM (OECD, 1999): Participants highlighted
the potential role of the clean development mechanism for fostering climate-friendly
technology cooperation and urged greater clarity on these issues. They also
cautioned against the mechanism being used by investors to compete for the cheapest
abatement projects, which could lead to uncoordinated and ultimately counter-productive
efforts (OECD, 1998b).
Other reports in this collection |