EU-China CDM Facilitation Project Assessment of the Impact of China's CDM Projects on Sustainable Development Policy Research Center for Environment and Economy of the Ministry of Environmental Protection Research Center of Urban Development and Environment of the Chinese Academy of Social Sciences Energy Research Institute of National Development and Reform Commission November 2009 This document has been produced with the financial assistance of the European Union. The contents of this document are the sole responsibility of the project Consortium and can under no circumstances be regarded as reflecting the position of the European Union. Acknowledgement This report is one of the important achievements of the EU‐China CDM Facilitation Project. The Policy Research Center for Environment and Economy of the Ministry of Environmental Protection (PRCEE)) has chaired and supervised the production of this report. Technical guidance has been provided by Dr. Ren Yong (Ministry of Environmental Protection) and Ms. Tian Chunxiu (PRCEE). The report has been written by Li Liping, Feng Xiangzhao, Shang Hongbo, Cao Fengzhong, Song Xuna (PRCEE); Chen Hongbo, Chu Chengshan, Zhen Yan, Wang Mou, Zhang Bo, Shang Jikun (Research Center of Urban Development and Environment of the Chinese Academy of Social Sciences (CASS)) and Yang Hongwei, Feng Shengbo, Zhang Minsi (Energy Research Institute of National Development and Reform Commission). We would like to express our special appreciations to Li Liping and Feng Xiangzhao. They have contributed greatly to the report regarding the methodology research and application as well as its drafting. Furthermore, we would like to thank Ms. Gao Si (IVL Swedish Environmental Research Institute) who has participated in the research and discussions on the related cases. We would also like to thank Jonas Fejes, Philip Thörn, Erik Särnholm and Mark Sanctuary (IVL Swedish Environmental Research Institute）for providing important feedback and comments on the report. Above all, we would like to thank Ms. Lin Na (Development Solutions) for her contribution to the translation and revision of the report’s English versions. Executive Summary The Clean Development Mechanism (CDM) is one of the three flexible mechanisms defined in the Kyoto Protocol under the United Nations Framework Convention on Climate Change (UNFCCC). It is a project‐based mechanism to allow for GHG emission reduction cooperation between developed countries and developing countries. The CDM has two purposes. They are to stimulate developing countries to achieve sustainable development and reach the final targets listed under the Protocol, and at the same time to help developed countries to meet their quantified emission reduction commitments. Since the Kyoto Protocol entered into force, the CDM has experienced fast development and is now a major component of the global carbon market. However, the degree to which CDM projects contribute to sustainable development in developing countries and deliver real additional reductions has come under scrutiny. This has been a major concern globally and the reform of current CDM has become one of the important issues for post‐Kyoto negotiations. Under such a context, Chinese and European partners under the EU‐China CDM Facilitation Project implemented the joint research project Assessment of CDM Projects’ Impact on China’s Sustainable Development. The core objective of this joint research is to develop a scientific evaluation methodology to assess CDM projects’ impact on China’s sustainable development based on quantified data, and to analyse the assessment results through the stakeholder approach, and finally to propose policy recommendations to improve the CDM. Based on the international experience and Chinese practice, this research adopted Multi‐attribute Utility theory, and developed a China‐specific evaluation methodology to assess the impact of CDM projects on sustainable development, entitled the Multi‐Attributive Assessment of CDM specific for China (MATA‐CDM‐ China)1. This methodology allows for the quantified assessment of the general impact of CDM projects in China on sustainable development (apart from HFC23 and N2O projects)2, which is indicated by the Sustainable Development Impact Level (U). The values of U range from ‐1 to 1. A positive U value shows that the CDM project will have a positive impact on sustainable development. A high value, which approaches 1, indicates that the project has a high positive impact on sustainable development, and vice versa. Thus, we can calculate the sustainable impact level of an individual CDM project and a category of CDM projects, and can compare the sustainable 1 The MATA‐CDM‐China methodology is applicable for assessing impact of single CDM project in terms of sustainable development. For information on this methodology’s limitation see section 3.2.4 of this report. 2 MATA‐CDM‐China is only applicable for energy‐related CDM projects as it is mostly built on energy consumption‐ related indicators. It is thus unsuitable for assessing the impact of non energy‐related CDM projects (such as HFC‐ 23 decomposition and N2O decomposition projects) on sustainable development. impact levels of different categories of CDM projects through the Sustainable Development Impact Level (U). The basic approach of the evaluation was to generate a score/value to compare with the baseline. Since most of the CDM projects are related to energy or power generation, in this project, the baseline was defined as a virtual power plant with all the average features of a coal‐fired power plant in China. Based on an extensive literature review, a number of expert workshops, questionnaire survey and other methods, this research established the following nine indicators and their weight and utility functions under the three pillars of sustainable development, which are social improvement, environmental protection and economic development: employment, social equity, capacity building, energy, emission reduction effect, ecosystem protection and land resources, technology, microeconomic efficiency, and regional development. Each indicator was represented and illustrated through various measurable elements. The single utility value (u) of each indicator was generated by the mathematical calculation from the utility function, which was based on each indicator’s feature and the status of the evaluated item. The total utility value (U), the impact level of individual CDM projects on sustainable development, was calculated from the single utility of all the indicators based on a mathematical model. Applying the above methodology, the research team studied all the 202 CDM projects3 in China registered at EB by 1 May 2008, and summarised and analysed all of their PDDs. Among these projects, we further selected 14 on‐going CDM projects and conducted field surveys, which covered all CDM project categories and all of the major geographical areas in China as representative cases of Chinese CDM projects. The research calculated and extensively analysed the impact levels of 12 non‐HFC23 and non‐N2O CDM projects on sustainable development. Based on the definition and the analytical methodology, the research results show that, the average sustainable development impact level was 0.49, and all the studied projects had positive sustainable development impact levels (above 0). This indicates that, in general, CDM projects in China contribute to sustainable development. However, they have not achieved the goal of promoting sustainable development in developing countries as defined in the Kyoto Protocol4. Specifically, the following conclusions were made: firstly, the sustainable development impact levels of CDM projects in China basically matched the priority areas of CDM project outlined in national regulations. Secondly, CDM projects mainly contributed to environmental protection and contributed relatively less to economic development and social improvement. Thirdly, the contributions of CDM projects in China to sustainable development differed across the project categories, sectors, and 3 See also “Technology Transfer in CDM Projects in China”‐report. Besides that, we also studied the PDDs of other CDM projects not yet registered and entering into the CDM pipeline, including the two cases of Wuhan Steel Coke Dry Quenching project registered on April 20, 2009 at EB and Jiangsu Taizhou Ultra Super Critical Plant Project registered at China’s authorized DNA on July, 18, 2008. 4 Article 2, The Kyoto Protocol, by the UN, 1998 among individual case. Fourthly, the scores of Chinese CDM projects impacts on sustainable development were closely related to the level of technology transfer in these projects. Fifthly, the sustainable development impact level of CDM projects in China was linked to the local economic development level, the nature of the project owner, the information availability, regulation, etc., and had no direct link with the geographical location of the CDM project. The analysis of the sustainable development impact of CDM projects in China showed that, with the joint efforts from various stakeholders, the CDM projects in China have contributed positively to the sustainable development. First of all, from the international perspective, the Kyoto Protocol has established the contribution of CDM to sustainable development in developing countries as an important principle and target. Second, COP/MOP and CDM Executive Board established relevant regulations and rules to ensure that CDM helps host countries