THE DANIDA FUNDED CLEAN DEVELOMENT MECHANISM PROJECT:

							INSTITUTIONAL ARRANGEMENTS FOR IMPLEMENTATION
OF THE CLEAN DEVELOMENT MECHANISM.

Presented by:
PHILIP M. GWAGE- Department of meteorology P.O. Box 7025
Kampala

1.   Introduction

The modus operandi of the Kyoto Mechanisms is a subject of
intensive negotiations. It is expected that the Sixth Conference of
the Parties to be held at The Hague, Netherlands in November
2000 will adopt a decision on the Kyoto mechanism, particularly
the CDM. The structure or nature of the CDM is one of the issues
under negotiations.

2.   The Structure/nature of the CDM

There are several ideas on the structure/nature of the CDM on the
negotiating table. Both negotiators and academicians have
suggested the following options: -

• Multilateral
• Bilateral
• Unilateral
• Combinations

Each of these has its own merits and demerits. These models are
discussed briefly below.

2.1 Multilateral Model

The multilateral model is like having a multilateral fund where the
countries or institutions interested in CDM put their money in a
common basket. The institution entrusted with the basket then
ensures that good CDM projects are implemented and that the
investing institutions get the value of their money through certified
emission reduction units (CERUS). This approach has the
following advantages: -

•     Reduced overheads by individual investing institutions
      because of pooled resources.
•     Experience in one CDM project can be replicated easily.
•    Capacity and experience developed will assist in quickly
     determining a good or bad CDM project.
•    Established relationship in the implementation of one CDM
     projects can be very useful in subsequent CDM projects.
•    Accumulated knowledge on implementation of CDM
Projects.
•    Attractive for small size CDM projects.
•    Reduced risks for investors.
•    Project development costs are transferred to recipient
country.

This model would require good capacity to formulate CDM
projects; this may be expensive for weak private sectors. This,
however, could be overcome by use of consultants whose
capacities would need to be built. Local consultants would be
much cheaper. The multilateral model would inhibit competition
and this could be a serious problem.

2.2 Bilateral Model

In this model a developed or group of developed countries jointly
invests on a CDM project in a developing country. Both investor
and host institution participate in the formulation of a project and
they negotiate the sharing of credits. Like any of the model it has
merits and demerits.

The following are some of the merits of this model: -

•    Good for countries with strong ties; other costs such as
capacity
     building and high capital can be subsidized with public funds.
•    Follows normal bilateral cooperation programmes between
     developed and developing country.
•    Flexible between two countries.

However, disadvantages of this model includes the following:

•    High transaction costs.
•    High risks for investing institution unless covered by public
funds.
•    Sharing of benefits require good skills from host country
     otherwise investing institution could take advantage of the
     weakness.

•    Discriminates against other countries since it is dependent
     on relationships.

2.3 Unilateral Model

In this model a developing country or an institution in a developing
country formulates and finances a CDM project. Such an
institution then sells the CERUS at the open market to the highest
bidder. The institution must have technical and financial capacity
ability to generate sufficient funds for financing the project. This
model is not suitable for countries such as Uganda who have
many and urgent problems to attend to. The private sector is
relatively young and weak.

A combination of these models may offer better opportunities. It is
hoped that this will generate some discussion'.

3.   Global Institutional Framework for the CDM

The Conference of the Parties serving as the meeting of the
Conference of the Parties (COP/mOP) to the Kyoto Protocol is
responsible for the overall implementation of the Kyoto Protocol as
well as the CDM. It will supervise the Executive Board (EB) of the
CDM.

The main functions of the EB includes the following:-

•    Supervises the implementation of the CDM under the
     supervision of COP/mOP and advise the COP/mOP.

•    Develops and reviews operational guidelines on CDM
Projects.

•    Assesses credentials of operational entities (certifying
     bodies) and reviews their performance and advises the
     COP/mOP.

•    Reviews reports submitted by operational entities and make
     recommendations to COP/mOP.
•        Assists in mobilization of funds for CDM projects.




      PARTY                       COP/mOP



                                                               SECRETARIAT




                                                                   EXECUTIVE
SBSTA                                 SBI                           BOARD OF
                                                                    THE CDM




                                                                  OPERATIONAL
                                                                    ENTITIES



Fig. 1                Shows Structure of the CDM and Linkages to
                      Other Bodies.


4.   National Institutional Framework

There are specific activities that each host country must be able to carry out in
implementing CDM projects. Some activities must be done at the host
country level either with some external assistance or using internal resources.
It is important to safeguard the integrity of the process through minimizing use
of external assistance. The activities to be done at the national level include
the following:-

•        Developing a policy framework including legal framework for
         implementation of CDM.

•     Developing national CDM operational guidelines and approval
procedures.
•      Formulating CDM Projects.

•      Approving of CDM projects and keeping a register of such projects.

•      Monitoring of CDM projects to ensure that these projects are
       implemented in accordance with the COP/mOP guidelines.

•      Developing base line (reference point) for CDM projects.

•      Implementing and monitoring of the CDM projects. Project
       implementers must be able to monitor reduction of GHGs at various
       stages of the implementation of the project.

•      Auditing of CDM project including auditing of project activities.

•      Designating operational entities to certify the CERUS.

•      Raising level of awareness in a country to ensure that stakeholders are
       well informed and are therefore able to participate effectively.

•     Identifying training needs and mobilizing resources to address such
needs.

There is a wide range of activities that a single institutional framework may not
be competent to handle. Required skills do exist in many national institutions.
These skills could be beneficial harnessed with a good coordinating
institution.

The focal point is the main contact with the other Parties and the Convention
Secretariat. In examining possible institutional arrangement for the CDM it is
also necessary to reflect on what institutional arrangement may be necessary
for implementing the Convention and other mechanisms that may be
developed such as development and transfer of environmentally sound
technologies under the Convention. Fig. 2 is intended to provoke discussions
rather than offering a solution.

Whatever institutional arrangement may be arrived at, it is important to note
that many of these institutions would need their capacity strengthen. Capacity
building should be viewed in a wider context than the normal narrow view of
equipment or workshops.
                                       NATIONAL
                                       COMMITTEE




                 SUPERVISING MINISTRY




                    IMPLEMENTING
                    FRAMEWORK


                                                    OTHER
                                                 GOVERNMENT
    NGOs                                         INSTITUTION




MEDIA                                      REGIONAL
ORGANIZATIONS                              GLOBAL
                                           INSTITUTION


 Fig 2     Generic Structure of an Expanded Implementing
           Framework