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76 per cent of all projects registered under the CDM had been completely constructed prior to being approved for credits calls further into question whether offset projects really relied on CDM-related financing.9 In an effort to make the demonstration of additionality less subjective and more transparent, over the last two years the CDM Executive Board has adopted guidance that aims to assess in a more objective manner whether projects can be economically viable without revenues from offset credits, if the project is impeded by too many barriers without the CDM or if the CDM was seriously considered in the decision to proceed with a project.10 All the same, rules could be improved or replaced. For example, emissions benchmarks can be used to measure the performance of a specific type of CDM project: the average emissions rate of top-performing plants for a given project type could be used as a benchmark, and only projects that have a better performance than the benchmark would be eligible for credits.11 For benchmarks to be effective, however, they must be updated regularly to reflect improvements in industry standards over time. Establishing benchmarks can be challenging, since industry performance data may be unavailable or confidential and because some sectors produce various products, necessitating multiple benchmarks. Market penetration rates, which can be used to judge the extent to which a technology is used within a sector, may also be used to determine whether or not projects are likely to be additional. While both are improvements over more subjective claims of additionality, however, neither can fully avoid the ‘free-riding’ of projects that would have been implemented regardless of the CDM. Another proposed method to improve the environmental integrity of offset credits is to move beyond an offsetting mechanism by crediting only part of the emissions reductions. For example, for 2 tonnes of emissions reductions only one offset credit may be issued.12 This option was proposed recently by the European Commission and in draft legislation for an emissions trading scheme in the US. Box 4.3 HFC-23: a case of perverse incentives under the CDM Hydrofluorocarbon-23 (HFC-23) is a powerful GHG generated as a by-product of manufacturing hydrochlorofluorocarbon-22 (HCFC-22). In developing countries HFC-23 is usually vented into the atmosphere, which has led to the capture and elimination of this chemical becoming the largest project type under the CDM. Nineteen registered HFC-23 projects are expected to deliver 476 million CERs by 2012, comprising about a half of the emissions reductions expected from the more than 2300 other CDM projects. With the abatement cost for eliminating HFC-23 less than US$1 per tonne of emitted CO2 equivalent, revenues from CDM projects can easily exceed the revenue from HCFC-22 sales.13
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