CDM (Clean Develoment Mechanism) has since its introduction in 2001 grown to become an imortant financial instrument, which contributes to significant transfer of funds from industrialized countries to developing countries. CDM is a ”flexible mechanism” under the Kyoto Protocol which ends in 2012, but the general assumption is that CDM will continue in the period after 2012 also. At the current rate of projects, the total reduction of CO2 through CDM until 2012 will be up to 2.5 billion ton. With an average price of around 15€/ton CO2, this equals a total transfer of almost 40 billion € to developing countries. Clearly a significant figure.
However, it is worth recalling that CDM has two primary purposes: One is to meet CO2 reduction targets in industrialized countries. To achieve sustainable development in developing countries is the second.
A vast majority of investments in CDM are made from a purely financial perspective. They are done in order to meet required CO2 reduction targets in the most cost effective way. However, what is most cost effective for a company in the industrialized world is not necessarily (or even likely) what contributes most to sustainable development in developing countries. The largest volumes in CDM projects so far have been to destroy industrial gases (HFC-23), mainly in China and to large-scale wind power farms in China. Although these projects are certainly important from a climate perspective, they add little value regarding other aspects of sustainable development. There are other projects, which are more effective in providing sustainable livelihoods to local communities in developing countries. These projects are often smaller scale, and can have difficulties meeting the stringent administrative requirements set up by the CDM framework.
In a recent study for the Swedish International Development Cooperation Agency (Sida), we investigated the opportunity for creating CDM projects with more positive impact on sustainable development by identifying synergies with corporate sector engagement in developing countries. Many large corporations are engaged in developing countries, with large supplier networks. They spend large resources on education and development of supplier companies, in order to improve the quality and reliability in the supply chain. This typically includes also compliance with ethical codes of conduct.
Large corporates work in long-term relationships with their local suppliers. Quite often, the supply chain is jointly developed over decades. But factors in focus for development are mostly those that have a direct impact on product quality. A broader perspective on sustainable development in these relations could have great long-term effects on social development, environmental development and on economic development. If, for instance, more effort was put into energy efficiency among suppliers, this could make the suppliers more profitable long-term. If the project is done in the form of a CDM project, funds for the project can be found through the mechanism. This also has the opportunity of generating more jobs locally and to provide funds for proper schooling for children etc.
The corporate sector are generally interested and enthusiastic about finding this type of synergistic project. However, it is a new area, where they have no experience at all, since their engagement in CDM has so far been purely financial, and their understanding of sustainable development in developing countries is often limited.
This is a win-win area to be explored. Multiple goals can be achieved: tackle climate change, eleviate poverty and also improve the quality and reliability in the supply chain for companies. This also means that multiple sources for funding can be identified. The projects are in the interest both of development organisations, local governments, large companies and investors in CDM.
Since this is a new area, not so explored yet, some recommendations for governments are in place:
- Identify in which corporate sectors the potential is greatest
- Collect information about ongoing projects which can inspire as show cases
- Educate businesses regarding sustainable development and CDM
- Provide the forum to discuss and explore joint project initiatives
And some recommendations to companies with interests in developing countries:
- Evaluate your supply chains (both up and down) to find opportunities
- Look for private-public partnerships and long term collaboration
- Learn from peers and pilot cases
- Build sufficient knowledge regarding sustainable development in developing countries and regarding CDM
Great and long-term opportunities exist in this field. Opportunities that will substantially contribute to sustaninable development in an economic way. It will be exciting to follow how this new sector develops.