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Date : 06/12/2005
Source: Department of Environmental Affairs and Tourism
Title: van Schalkwyk: European Climate Platform (ECP) event on improving functioning


  Keynote speech by Marthinus van Schalkwyk, South African Minister of Environmental Affairs & Tourism, at the European Climate Platform (ECP) event on improving the functioning of the Clean Development Mechanism, Montreal, Canada

SECURING THE FUTURE OF THE GLOBAL CARBON MARKET: IMPROVING THE CDM - KEY FOR DEVELOPING NATIONS

The concepts of binding international obligations and shared multi-lateral actions are the bed-rock of the United Nations Framework Convention on Climate Change (UNFCCC), the Kyoto Protocol, and its Clean Development Mechanism (CDM).

As the leaders charged with translating this political will into concrete action, we all too often lose sight of the overarching global imperative. When days are spent negotiating the position of three lines of bracketed text, we often find clarity replaced by confusion. The reality must never be allowed to fade: we meet, not to wring out short-term economic concessions, but rather to chart a way forward on a global crisis that threatens the very survival of the world as we know it.

It would not, I believe, be wrong to say that we arrive in Montreal with the highest of expectations, and a deeply rooted optimism that we will leave on Friday committed to a clearly defined Montreal Mandate to achieve a two track paradigm of multilateral action beyond 2012; in other words, to operationalise a Kyoto Plus regime.

In focusing these two weeks of deliberations on the three inter-related objectives of implementation, improvement and innovation, Canada has brought new direction to these discussions.

Without disrupting the market, or setting back the progress already achieved through the CDM, we believe however, that there is a need to constructively evaluate the CDM, to consider the early lessons and improve the CDM. There is also an urgent need to give a clear policy signal to the investment community on the security and scope of the carbon market after 2012. In other words, we need to fix the CDM in the short term, and provide a loud and clear policy signal for the second commitment period.

This will be best achieved by an unwavering commitment to growing the carbon market through deeper emission reduction targets in the developed world, in line with commitments as clearly specified and legally mandated in Article 3.9 of the Kyoto Protocol. To prevent further dangerous interference with the climate system, we believe that it will be necessary for Annex I Parties to make substantially deeper emission cuts during the second commitment period. This is the first track.

At the same time, we understand clearly that developing countries need to do more in terms of their differentiated responsibilities, but that absolute targets are not appropriate for developing countries. It will not be easy to convince all developing countries to do more and to accept more specific responsibilities if some developed countries continue to disregard their responsibilities. But as global citizens, developing countries understand, or should understand, that there are also common responsibilities and that this requires positive action.

In this respect, we believe it will be possible to agree on a programme of action for developing countries to fully implement existing commitments and provisions under the Convention. This could be given concrete content through a work programme following an approach of positive incentives for actions that simultaneously promote local sustainable development, and reduce and avoid greenhouse gas emissions in a manner appropriate to national circumstances. It will be critical that such an incentive based approach balances adaptation and mitigation actions. This is the second track.

South Africa is strongly committed to the CDM

The theme of our dialogue this evening falls squarely within the ambit of the COP President's second objective - improvement, while at the same time bringing high levels of innovation to bear, especially in building a strong carbon market beyond 2012, and encouraging a programmatic approach to the CDM,.

South Africa views the CDM as an important vehicle for innovative international cooperation to channel new investment in developing countries towards projects that support the achievement of sustainable development objectives; for introducing climate change friendly technologies; and as an opportunity for capacity building through collaborative efforts with developed nations.

As many here tonight will know, South Africa is actively engaged in the carbon markets and emissions derivative trading. We are open for business under the CDM. The first CDM project in South Africa has been registered, installing efficient lighting, solar water heaters, and better insulation in low-income housing in Kuyasa, Khayelithsa in the Western Cape province. We believe that this project demonstrates the potential for CDM projects to promote local sustainable development whilst at the same time reducing greenhouse gas emissions.

Our Designated National Authority (DNA) has to date received 16 project proposals submitted for review in areas like landfill gas, hydro-electric, fuel switching and industrial energy efficiency. Of these, five are at an advanced stage and will be submitted to the CDM Executive Board before the end of this year. If implemented, these projects will be equivalent to a reduction in CO2 emissions of more than nine million tons per year, and will contribute more than $253 million to the South African economy. These CDM projects have crediting periods until at least 2015 - some even extend until 2026, which make a longer time horizon for the carbon market so critical

Lessons Already Learnt - CDM Challenges

As a developing African country, our experience of the CDM has not been unproblematic. In particular, we believe that there is an urgent need to address issues like the fact that the CDM market is relatively small and inhibited because of its limited life-span. There is a critical imperative to ensure the continuation of the CDM beyond 2012, including deeper emission cuts for Annex I Parties. Without these, there will be very limited demand for Certified Emission Reductions (CERs). Markets need clear expectations of future value, and the current life-span does not provide sufficient certainty to markets and investors, especially as an incentive for large, capital intensive project financing.

The current regulatory complexity also discourages investors and need to be streamlined. Simplifying, consolidating and improving baseline methodologies, like standard 'benchmarks' for specified technologies, and devising new methodological options will build on the work already done by the Executive Board.

It has also been our experience that pre-implementation 'transaction' costs for CDM projects impact negatively on business involvement in CDM projects, for example smaller energy efficiency and renewable energy projects. Reducing or exempting registration fees and other transaction costs for small projects, and ensuring clear and fast approval processes through the DNA's may assist the process and give business a greater incentive to drive technology diffusion.

It is also important to note that the various discussions we will be holding under the UNFCCC to accelerate technology development and its transfer on preferential terms will facilitate the development of effective and sustainable CDM projects. In this regard, there is also a need for better dissemination of information and technology options, in other words, information-sharing by governments, industries and public utilities. This is true for developing countries' access to the developed country investor community and likewise for developed countries' access to information on CDM opportunities in developing nations.

In conclusion, the CDM is established as a critical component of the Kyoto architecture. We know that the deliberations at this COP MOP1 will open the discussions about both the second commitment period under the Kyoto Protocol for developed countries and a strengthened multilateral climate change regime under the Convention which should focus on strong actions to address climate change in developing countries.

South Africa believes that within these discussions it is crucial for the CDM to remain an important element of this architecture - which, in turn depends on deeper cuts in greenhouse gas emissions beyond 2012 in Annex 1 countries, global emissions trading, and technology transfer programmes. With its dual goals of reducing GHG emissions and promoting local sustainable development, the CDM has great potential to bridge both the technology gap and the investment gap. Success in these endeavours will mean, amongst other things, that the issues of intellectual property rights and the need for developed countries to take a more decisive lead in funding and capacity building, must take centre-stage in our deliberations.

South Africa stands ready to do more, as do almost all developing nations. To do so, we will need multilateral incentives and implementation beyond rhetoric, and within the framework of a new two track paradigm of multilateral action beyond 2012.

Enquiries: Riaan Aucamp
Cell: 083 778 9923
Issued by: Department of Environmental Affairs and Tourism
06 December 2005

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