Defining and Measuring the Development Dividend Meeting of the Expert Task Force of the IISD Development Dividend Project March 27-28, 2006 Vancouver Aaron Cosbey, IISD

Outline of Presentation Overview of recent developments in the CDM – is there still cause for concern? Considerations in measuring the development dividend Proposed assessment tool

CDM: What Has Changed in the Last Year? Number of projects, CERs, methodologies Mix of project types Prices for CERs Growth in unilateral CDM

2005: 91 projects (0 registered) 2006: 654 projects (135 registered) Growth = 720%

Shifting of Project Mix in the Pipeline

2005: 131,599 CERs 2006: 836,266 CERs Growth = 635%

Shifts in CER Distribution in the Pipeline

2005: 44 projects (48%) 15.5 MtCO2e (12%) 2006: 300 projects (46%) 65 MtCO2e (8%)

2005: 35 projects (39%) 5,7124 mtCO2e (43%) 2006: 456 projects (70%) 311,569 mtCO2e (37%)

Regional disparity of CERs: Not as bad as it seems? We should expect to see disparities, based on disparities in GDP and population (proxies for project opportunities)

May 2005: prices at EUR 5 – 9 March 2006: –Category 4 transactions as high as EUR 28 –Basic registered projects – up to EUR 20 –Validated, some credit risk – EUR 11 – 12 CER Prices Much Higher

Quantity: –0.84 billion CERs in the pipeline. –Predicted demand for AAUs of 4-5 billion. –Post-2012 uncertainty means CER supply will taper off. Equity: –Not critically flawed – probably better to focus on overall quality of SD benefits in CDM. Quality: –Half of all CERs in pipeline are HFC and N2O –Increase in unilateral CDM, possible programmatic CDM –High prices may allow more quality projects. –In the end we do not know. Is the CDM Delivering the Development Dividend?

Why do it? –CDM quality is the key to solving to the quantity problem. –Our recommendations for change need the foundation of a development orientation. –The only way to demonstrate that is by measuring, assessing, projects (ongoing and proposed). Assessing the Development Dividend

How to do it? –First, need to establish what the tool will be used for. Who might use it? Buyers: –Regulated market and voluntary markets –Government, IGOs and private sector Host countries (DNAs) International policy community Assessing the Development Dividend

Qualitative threshold tests –DNAs in India, Brazil, China, others Discrimination by project type: –China, Columbia regulations –Premium payments by World Bank, CERUPT Multi-Criteria Analysis (MCA) –SSN Matrix/Gold Standard, CCB standards –Various researchers, analysts Current Models for Assessment

Strengths and Weaknesses Qualitative threshold tests –Simple to specify –Amenable to country-specific circumstances –Too subjective –Unable to compare projects to one another –Useful for DNAs, not for others

Strengths and Weaknesses Project-based discrimination –Simple to administer –Able to rank projects, but not within project types –Fails to capture differences between projects of given project types –Useful for buyers, DNAs

Strengths and Weaknesses Multi-criteria analysis –Able to rank projects against one another –Can be modified to adapt to local priorities –Complex system: choosing criteria, weighting –Information demands are daunting –Useful to buyers, international policy community

Proposed Assessment Tool “Hybrid” MCA/project type system (with criteria, indicators) applied to project methodologies. Use elements of existing tools for their specific strengths (e.g., CCB for LULUCF) Four criteria: social, economic, environmental, integrated Base score assigned as per methodology, bonus points assigned as per PDD

Proposed Assessment Tool Threshold requirement: balance among environmental, social, economic criteria Limited number of indicators, some qualitative Narrow range of scoring for each indicator (e.g., 1 – 5)

Weaknesses Insensitive to country-specific circumstances Accounting for project size may be difficult How to monitor “bonus undertakings”? Labour intensive to create: needs extensive stakeholder involvement, applies to large number of meths

What Level of Ambition? Wide range of possibilities for an assessment tool, with attendant range of necessary commitment of resources. What would the tool be used for, and by whom?

Aaron Cosbey International Institute for Sustainable Development