The UNFCCC’s Clean Development Mechanism (CDM) has enjoyed great success in deploying more than $300 billion of investment into clean technology in developing countries around the world.
But recent decisions by the UNFCCC risk alienating many of the companies whose activities support this mechanism and discriminate against smaller enterprises.
Returns on CDM investments have fallen far short of expectations after prices for CERs collapsed and demand plunged. Project developers face shrinking returns but their costs remain high.
Unfortunately, the UNFCCC’s reaction to the drop in demand and prices for CERs has been to penalise project developers by requiring them to pay their Share of Proceeds before submitting their Request for Issuance rather than after the CERs have been generated and possibly, monetised.
This means that smaller developers have to divert precious cash flow to the UN before they have realised the assets. Bigger companies with greater financial resources naturally don’t find this a problem.
What’s more, the UNFCCC has introduced financial penalties for developers who withdraw requests for issuance or whose request is rejected. Developers stand to lose up to $30,000 for each issuance that is withdrawn after it has been published or that is rejected.
The CDM secretariat is already notorious for rejecting requests or issuance for the flimsiest reasons, ignoring the merits of the project and the accuracy of its verification.
Such financial penalties will act as a powerful deterrent to developers from requesting issuance, and could even kill off remaining interest in the CDM. Project developers take on enormous risk when setting up CDM projects in terms of time, money and resources, and to face a new, additional risk from the mechanism’s administrator is unacceptable.
Again, larger companies can devote greater resources to ensuring requests for issuance are compliant, so this decision also discriminates against small and medium sized enterprises which have fewer resources to devote to administration.
Project developers and investors must unite in their opposition to these new financial demands, which act as a deterrent to new investment and development and as a punitive tax on their activities, which benefit both the UNFCCC as well as the entire planet.
We hope that developers can agree a common approach and appoint a representative body to bring these concerns to the attention of the CDM authorities.
Author: Alexis L. Leroy CEO, ALLCOT Group