Geneva, 18 June 2010

IETA notes with concern the recent proposal made by CDM Watch, an NGO, to revise CDM methodology “AM0001: Incineration of HFC23 Waste Streams”. The proposal is motivated by the belief that the present safeguards in the methodology are not adequate to prevent perverse incentives. It argues that incentives exist to increase the production of HCFC-22 purely to benefit from emissions reduction credits despite the fact that the CDM methodology already caps the ratio of HCFC-22 production to HFC-23 generation eligible for crediting. The new proposal seeks to reduce that cap substantially, thereby cutting the emissions reduction credits generated by up to 90%.

Revising methodologies is a normal aspect of the CDM process. Methodology revisions ensure continuous improvements, both in terms of environmental integrity and workability for project participants. That being said, CDM methodologies provide the basis for investment decisions, and revisions must be undertaken in keeping with existing rules. Those rules clearly state that projects must apply methodology revisions at the time of registration or the renewal of a crediting period. Failing to follow those rules, or sidestepping them by issuing clarifications that would significantly alter the credits generated by registered projects, undermines the legitimacy of the regulatory process. Any attempt to apply rules retroactively substantially increases concerns about regulatory and political risk and reduces willingness to invest in the mechanism going forward.

IETA is concerned about the politicized nature of the current public debate and the pressure that such politicization puts on the regulator. Consideration of the proposal to revise the existing methodology must be entirely objective and transparent, taking into account all available sources of information and ensuring that all concerned parties be fully heard, through a public input process.

The first step must be to distinguish between inadequate application of the existing methodology, and systemic problems in the methodology itself.   In the first case, appropriate action should be taken against those who have not done what the methodology requires, and those that have deliberately gamed the system.  In the second case, clear evidence and full consultation is needed.

In responding to the proposed revision today, IETA’s President and CEO, Henry Derwent, made the following statement: “HFC projects are a dwindling proportion of the CDM portfolio, as renewable energy and energy efficiency projects increase in number.  The shift in focus to other technologies, however, does not lessen the importance of the reaction to this particular concern. To ensure continued investment in the next generation of CDM projects, the response must be handled in a way that ensures environmental integrity while not compromising procedural fairness.”

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