November 15, 2000

The infection that the South must avoid

Fungibility? Is it a pasta dish? No. Is it a fungus then? Yes. It is a new fangled mushroom. It grows on a thing called the Clean Development Mechanism (CDM). It means that that the Certified Emissions Reductions (CERs) once bought from developing countries can be traded, transferred or exchanged. Good business.

So why should developing countries oppose it? Simply because the CERs the South is selling are cheap today. The bulk of the CDM is expected to go to least cost emissions reduction options like clean coal technology only about US$3-14 tonnes of carbon equivalent saved. The cheap options of the South will be captured today, and then traded tomorrow - at higher prices. And, who knows, even sold back to the South!

CDM is a desperately sought after instrument because it allows industrialised countries to buy their emissions reductions at a very cheap rate. But for the South this sale could have a high cost tomorrow. Economists predict that many carbon saving options that cost as little as US$10-25 per tonne of carbon saved currently could cost up to US$200-300 per tonne in the long term. When the South has reached higher levels of energy efficiency, its domestic costs for curtailing carbon emissions will also increase. The North will then have no economic incentive to invest in CDM. But with little or no action to reduce emissions domestically by the North, the threat of climate change will still be high. The South will come under increasing pressure to take on emissions reduction targets. Maybe then it could buy its cheap reduction options back from the North.

Talk about being pound foolish….

If fungibility is to be accepted, the South must insist that CDM will not include its low hanging fruit. We need some more creative accounting.

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