First SDM Joint Coordination Workshop Initial Plenary: Durban Outcomes Henry Derwent Bonn, 24February 2012

A reminder of how the international carbon market was supposed to work K3 K2 K1 NA1 Kyoto Land Non-Annex1 (Devg Countries) CDM Projects Trading Scheme between Installations etc Airland JI Projects

The way the global carbon market is going CDM System and developments National Sector or City Country 2 Trading Scheme Country 1 Global Sector National/loc al offset standards (EPA, California) Bilateral systems or deals International offset standards (VCS, CCX, CCBA) International offset standards (VCS, CCX, CCBA) Domestic Projects

Offset Projects 2012: a Toxic Mixture of objections Purchasing indulgences: corporates or individuals « Anyway » tonnes: Cant trust foreigners « Anyway » tonnes: Cant trust baselines Contaminated currency (domestic and linking) Allows putting-off domestic investment The ghosts of low-hanging fruit International negotiations: « Supply only » days are over EUETS over-supply Objections in principle to some meths Integrity of land-use meths? Emerging trading schemes not taking someone elses rejects « Everybody knows the CDM doesnt work» « The CDM is evil »

Primary CDM picture looks very bad CDM activity declined because: – reduced compliance needs due to slow economic recovery – uncertainty re: post-2012 rules – less origination activity as buyers seek predictable credits and fewer projects – competition with AAUs and secondary CERs – Lower demand from EUETS Durbans improvements not enough to change this CDM value (US$ billion -12% -59% -46%

Durbans Improvements to the Mechanisms Doubt about continuation of CDM (and JI?) removed Materiality regime agreed Pointers in the right direction on: significant deficiences, simplification, co-benefits, additionality, first of a kind, faster processing of methodologies, consequences of methodologies being put on hold, standardised baselines, suppressed demand, digitisation, reduced waiting times, support for underrepresented countries, loan scheme, new DOEs Better understanding for the users experience, better norms of communication, and the rule of law CCS Appeals mechanism not agreed But EU-ETS close-down (impacts on EU MS too) now beginning to be understood

Focus for this Workshop Large number of issues on the table Golden thread: effective functioning of the market Kyoto Project Mechanisms under threat like never before Participants leaving while need is rising Going forward, little compelling reason for private sector to stay interested A system that works is the best defence