Benefits of CDM beckon Bangladesh

by Saleemul Huq


Bangladesh has the potential to benefit from a carbon trading regime if it takes the trouble to understand the issues at stake and what needs to be done in order to gain the benefits. This will require some understanding at the policy making level. In addition to the government, the private sector will be a key player; for it will put the CDM projects together, writes Saleemul Huq

DURING this week the world's environment ministers are meeting in the Netherlands to discuss ways of implementing the Kyoto Protocol of the United Nations Framework Convention on Climate Change (UNFCCC). The COP6 of the UNFCCC, as the meeting is called, will determine whether the developed countries are really serious about their commitments accepted under the Kyoto Protocol to reduce their greenhouse gas (GHG) emissions by specified targets within a period of 10 to 12 years, called the First Commitment Period. Although there are many issues being discussed at The Hague regarding different aspects of climate change, carbon trading, under certain rules and regulations, is likely to get some form of approval. Carbon trading, also called "flexibility mechanism" or "market mechanisms" under the Kyoto Protocol, are a means whereby a developed country is allowed to pay to reduce GHG emissions in another country where it would be cheaper to do so and in return get some of the benefits of the reduced GHG emissions. This can be done in two different arrangements. The first called "joint implementation" or JI is between a developed and a country in transition (i.e. Russia or eastern European countries) which has plenty of scope for reducing their GHG emissions. The second mechanism, also called the clean development mechanism or CDM, applies to trades between developed countries and developing countries. Although the CDM has not been fully approved yet it is likely that its rules and governance structure will be agreed at the COP6 in The Hague and that it will become functional very soon.

This will open up an opportunity for developing countries to benefit from carbon trading. However, it can also be a double-edged sword. In the first place the CDM is meant for private sector investors form the developed countries to invest in projects in developing countries which will give GHG reductions which they will pay for and take credit for. The rules of this procedure need to be applied both at the national level as well as internationally to make sure that the GHG emission reductions (also called certified emissions reductions or CERs) are genuine and not falsified.

An important issue is about the developing countries' ability to put together and sell CDM eligible projects. For example, it has been estimated that over 80 percent of all CDM projects may well go to only a handful of the larger developing countries such as India, China, Brazil, South Africa and a few more Latin American countries. That means most of the poorer developing countries in Asia and certainly in Africa are likely to be left behind and will not be able to benefit from this market mechanism.

However, quite a few of these poorer developing countries including Bangladesh have the potential ability to develop and market such projects if they make the effort to do so. They must first learn the rules of the game. What kind of projects are eligible, how to prepare a feasibility study in terms of carbon abatement potential as well as economic viability, etc are the basics that these countries must learn. Besides, these countries must make the private sector in the country sufficiently aware and knowledgeable about CDM to market such projects (it should be recalled that CDM projects are meant to be primarily by private sector in both developing and as well developed countries).

In addition to specific private investments by developed country companies there are also other potential developed country investors in a future carbon market. For example the World Bank has launched the Prototype Carbon Fund (PCF) with 150 million dollars already committed form a number of developed countries and large companies. This fund is to be used to invest in projects in developing countries and countries in transition to purchase the carbon benefits (in the form of GHG emission reductions or CERs). It has already signed its first contract for a municipal waste treatment project in Latvia and has several more projects in the pipeline. The investors in the PCF thus, have access to CERs, which are not necessarily tied to a single project. The World Bank's intention in starting this Fund is to kick off the carbon market at a fair rate (which is likely to be above $ 15 per tonne of carbon) with proper baselines and monitoring systems in place. Although Bangladesh is not a member of the PCF it can become one if it wishes to and thus also benefit form some investments through the PCF.

Bangladesh has the potential to benefit from a carbon trading regime if it takes the trouble to understand the issues at stake and what needs to be done in order to gain benefits. This will require some understanding at the policy making level by the relevant ministries concerned namely the Environment Ministry (the Environment Minister is attending the meeting in the Hague) and the Finance Ministry who will have to approve any projects. In addition to the government a most important player will be the private sector who will have to be the ones to put the CDM projects together. In order for them to do so, they will need some training and assistance from experts. However once they learn how to do it they will be able to develop and market the projects themselves. Finally, there is an important role for civil society organisations on this issue. This is because one of the objectives of CDM projects is not only Carbon abatement but also sustainable development. The latter is not well defined and needs the involvement of civil society groups (including NGOs, researchers and media among others) who will help define the parameters and also act as effective monitoring agents for these projects.

Thus if Bangladesh can learn to play its cards right it can expect to benefit from the emerging carbon market, which is likely to be worth billions of dollars within a few years. The critical decisions will need to be made in the next few months on whether we are up to the challenge or not.


Source: The Daily Star, November 24, 2000