World Energy Outlook 2007

een registered, are being validated or have been submitted for validation as of
August 2007 (Table 6.1). China alone accounts for more than half of these
credits. Of China’s credits, about half come from energy-related projects; 7 this
share is around two-thirds in India. Of the cumulative energy-related credits to
2012, about one-quarter are from renewable energy projects in both
countries. The main buyers of credits worldwide are industrial companies and
power generators in the European Union, covered by the EU Emissions
Trading Scheme, and in Japan, where there are voluntary agreements on
greenhouse-gas emissions reductions.
China has made the CDM an important component of its strategy to make its
economic development more environmentally sustainable. It has devoted
considerable effort to developing, at national, local and enterprise levels,
expertise in identifying and designing CDM projects. It has developed clear
institutional structures and implementation strategies aimed at streamlining
CDM procedures. A law on “Measures for Operation and Management of
Clean Development Mechanism Projects” has been adopted, setting out
priorities for CDM investment – energy efficiency, renewables and methane
recovery and utilisation. The law also establishes general provisions, licensing
requirements and institutional arrangements for project management and
implementation. It stipulates that only majority-owned Chinese companies are
eligible to participate in CDM projects, which may limit inward investment.
The long-term prospects for CDM hinge on decisions made by the Parties to
the UN Framework Convention on Climate Change over greenhouse-gas
emissions reductions after 2012 – the end of the commitment period for
Annex I countries under the Kyoto Protocol. In practice, demand for CDM
credits will depend on the stringency of emission commitments in Annex I
countries. CDM will remain important in establishing price signals for leastcost
reductions and in enhancing the institutional capacity to estimate,
monitor and review the potential for such reductions in developing countries.
The potential for CDM could expand significantly, with the possibility of
credits being traded internationally were different emissions-trading schemes to
be established. Question marks over validation and certification procedures will
need to be addressed to ensure that the costs of projects are minimised, that
certified emissions reductions would not otherwise occur and that perverse
incentives do not arise to augment emissions so as to benefit from sales of
emission credits.
6
7. Almost 40% of China’s credits and one-quarter of India’s come from projects to reduce
emissions of hydrofluorocarbon-23 (HFC-23) – a by-product of making hydrochlorofluorocarbon-
22 (HCFC-22), substance largely used for refrigeration, which is both a powerful greenhouse gas and
an ozone-depleting agent.
Chapter 6 - Energy Policy Ramifications 239