The changing role of the project mechanisms in emissions trading

Abstract

The perception of the project-based mechanisms has varied since their inception under the name of Activities Implemented Jointly (AIJ) to their form under the Kyoto Protocol of Joint Implementation (JI) and the Clean Development Mechanism (CDM). AIJ projects of course still exist under the Marrakech Accords. The controversy surrounding the concept of emissions trading and the need for purely domestic reduction actions has not really abated. The role of JI and the CDM and of AIJ is therefore interesting in the way these mechanisms have alternately been propelled along by their role as market mechanisms in achieving a low carbon future ‘at least cost to society’ and then reined in by those concerned that the priority should be domestic action. New arguments have appeared with time. The environmental integrity of the reductions achieved by project based mechanisms is now seen as a key selling point in an international market beset by ‘hot air’. Thus the popularity of the project mechanisms is now being propelled along by concerns on environmental integrity but then limited by problems with increasing transaction costs due to the complexity of the system to ensure that integrity.

The pressure to reduce transaction costs for the project mechanisms has led to investigation of possible simplified and standardised procedures for baselines for the project mechanisms. This paper therefore traces the evolution of the project mechanisms and some of the latest developments in carbon accounting for reductions for large and small-scale projects as well as looking at the implications for projects under the EU and UK emissions trading schemes.