PANE

Impacts of the CDM on the Energy Mix and the potential Role of the Sustainable Development Mechanism of the Paris Agreement to Pioneer an Energy Transition in Selected Countries

  • Project no.251037
  • Duration 11/2016 - 06/2017

The decarbonisation of energy supply is a key element of the transformation required to achieve the objectives of the Paris Agreement. This research project analysed how Article 6 of the Paris Agreement might be used to promote the further upscaling of renewable energy use.

Under the Clean Development Mechanism (CDM) of the Kyoto Protocol, effectiveness of the incentives provided has been limited by the associated transaction costs, issuance risks and price risks. Moreover, the technology-neutral approach has resulted in incentives being inefficiently high for some project types and too low for others, including for CO2-avoiding renewable electricity generation projects.

Opening Art. 6 for national-level design options could help overcome these limitations by harnessing national policies for climate change mitigation. Art. 6 could be used to support policy instruments that have already proven to be highly effective in mobilising private investment for renewable energy. A core part of the project was developing cooperation options on the basis of such domestic policies. The study looked in detail at options for:

  • Sectoral crediting for the power sector;
  • Trade in Renewable Energy Credits (RECs) and linking of systems of renewable energy quotas;
  • International co-financing of renewable energy capacity auctions;
  • International co-financing of feed-in tariffs.

For countries that do not yet have the capacity to implement such policies, programmatic approaches as developed under the CDM could be used. Such a policy-based approach would mark a step change from the traditional project-based offsetting approaches exemplified by the Kyoto mechanisms. It would require investor and host countries that are willing and able to engage with each other at a political level. This role would be very different from their core role in the CDM, issuing letters of approval for projects driven by private entities.