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Enhancing Integrity in CDM Procedures: Risk Mitigation Measures

Addressing significant deficiencies in validation, verification, and certification reports in sustainable development mechanisms. Discussing risks, liabilities, and measures for compensation of over-issuance. Exploration of incentives for DOE performance and risk-based approaches. Evaluation of insurance products for risk mitigation. Proposed steps for ensuring integrity and enforcement.

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Enhancing Integrity in CDM Procedures: Risk Mitigation Measures

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  1. DOE/AE Forum | Werner Betzenbichler| March 2012 1st Sustainable Development Mechanisms Joint Coordination WorkshopSignificant Deficiencies in Validation, Verification and Certification ReportsRisk and Liability associated with the Procedure, and Measures to address it

  2. What are the objectives behind this procedure? Compensation of over-issuance – integrity of the CDM • Shall DOEs compensate for every identified ton of excess issuance? • Or only, if it goes beyond the materiality thresholds? • Or only, if it is not caused by ambiguous regulations? • Or only, if it is caused by cases of fraudulence or professional negligence? • Do we need this compensation to safeguard the integrity of the CDM? • Would DOEs have the ability to compensate? (to-date almost 900 mil issued CERs) • When can a DOE be sure that no compensation will required any longer for a request anytime in future?

  3. What are the objectives behind this procedure? (2) Incentive for (perfect) DOE performance • Are more incentives or penalties required beyond the accreditation standard and procedure? • How should the procedure create better quality? • Should any incentive be linked to the amount of emission reductions? • Do quality requirements depend on the size of a project? • Is professional negligence insurable? • Isn’t the loss of accreditation the most severe penalty?

  4. What are the objectives behind this procedure? (3) A safety belt for the risk-based approach • Does the risk-based approach require a safety belt? • Should this be ruled on the costs of DOEs? • Isn’t reference to Marrakech Accords then only a fig leaf? • Shall we agree to something without precedence? • Wouldn’t this randomize the risk of being liable?

  5. Risks and Liability without the procedure

  6. Risks and Liability with the procedure

  7. Risks Mitigation Measures Measures under discussion • Insurance products • Capping, limiting risks • Disconnection from CER volumes • Set-aside for each project • Leaving market • No procedure at all • Designing a suitable procedure

  8. Insurance Products • This kind of liability is not covered by regular liability insurance • But in principle everything is insurable: human error, fraud, professional negligence, its only a matter of finance • DOEs and insurance companies have difficulties to quantify likelihood, potential volumes and resulting risks • Expectation of high premiums to be added to service costs • Potential of market distortions, if insuring is not made mandatory

  9. Proposed Next Steps DOEs have already collected internally views of what is deemed acceptable • Limitation to fraud and professional negligence • Financial penalties with cap and a commensurate ratio to service fees • No liabilities when there is ambiguous guidance (incl. period before VVS) • No endless (21+ years) liability for registrations • A concept with low likelihood that the procedure will ever be applied • A system which is enforceable (practically and legally) We suggest a closed workshop with UNFCCC secretariat, EB members and AP members

  10. Thanks for your attention Werner BetzenbichlerChair of the DOE/AIE ForumWerner.Betzenbichler@bece-experts.com

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