Moving on: the clean development mechanism after Kyoto

Australia recently announced that it will sign up to the Second Commitment Period of the Kyoto Protocol that will likely run from 2013 to 2020 with a number of conditions. Over the next fortnight at the latest round of UN climate talks in Doha, the rules that will govern this new phase are being fleshed out.

However many nations are plagued by commitment issues, with several including Canada, Japan and New Zealand refusing to sign up to the new phase and Russia looks set to join them.

Despite this, Australia has now joined a select group of progressive developed countries and blocs including the European Union, that have overcome their commitment phobia, and in doing so will ensure that the important and effective work of addressing climate change continues.

An essential component of this is that developed countries assume an emission cap. Australia recently announced its target as being 99.5 per cent of 1990 levels, which represents a small dietary cut from fossil fuels of five per cent of 2000 levels.

This is a step in the right direction, albeit a baby one.

Nevertheless, Australia's commitment is not without conditions. One of our main stumbling blocks to signing up to an additional period of Kyoto is that the Clean Development Mechanism (CDM) remains operational.

The CDM was established through the Kyoto Protocol more than a decade ago, with the dual goal of assisting developing countries to achieve sustainable development, and to assist developed countries in meeting their emission reduction commitments.

Essentially, the CDM allows a developed country to invest in a project in a developing country that will reduce greenhouse gas emissions, provided that the reduction is larger than what would have occurred in the absence of that investment. The emissions that are reduced from this project above what would ordinarily have occurred, is then credited and transferable to the developed country to assist them meeting their reduction commitments.

In this sense, the allure of the CDM is that it operates as an emission offsetting mechanism, whereby emission reductions occur where they would be most economically efficient to do so. In other words, the CDM allows a developed country to increase their domestic emissions if it is cheaper for that country to invest in a project in a developing country.

However, the operation of the CDM as an offsetting mechanism is extremely problematic.

For example, the CDM allows for an increase, in real terms, of greenhouse gas emissions as the CDM allows a developed country to increase their domestic emissions, by simply investing in an offsetting project in a developing country.

To counter this going forward, it must be limited to only those countries that have committed to a binding emission cap.

However, this reform will be limited if international ambition to combat climate change does not increase, especially following a collapse in the carbon market this year.

Despite the CDM being responsible for facilitating a substantial amount of foreign investment in developing countries to help them both mitigate and adapt to climate change over the past decade, without an increase in ambition, the CDM will expire along with the first Kyoto commitment period.

This would be a disastrous for international efforts to tackle this global problem. The CDM has been the pivotal, international method for including developing countries in the solution to a problem that will affect all countries.

Indeed, it is the nations in the developing world which are amongst the most vulnerable when it comes to the effects of dangerous climate change. If the CDM were to cease, this would be a substantial loss to the suite of international policy tools to combat climate change. It is therefore imperative for the CDM to continue into the future.

It is clear that the developed nations who have committed to the extension of Kyoto will still have access to the CDM. However, there is doubt in relation to those countries which have publicly opted out.

Nevertheless, in the interests of reducing greenhouse gas emissions, those countries which have opted out but maintained an emission cap or target, should be allowed to participate in Kyoto. This will ensure the vital climate finance flows in to developing countries, and provides incentives to all developed countries to reduce emissions.

This is the position that Australia should be pursuing in the negotiations in Doha. It is unfortunate that our Kiwi neighbours, Canada and Japan have opted out, but to exclude these nations from utilising the CDM even though they have assumed an emission target, would only mean a backwards step for our ability to combat climate change.

Therefore, Australia should condition its approval of countries participating in the Kyoto mechanisms such as the CDM on these nations adopting an ambitious, and strong emission reduction target.

But to do so, Australia must lead by example and substantially increase its reduction target to at least 15 percent on 2000 levels from the currently pledged 5 percent.

Increasing this ambition will not only spur on CDM investments within the developing world and ensure that the world is moving in the right direction towards addressing climate change, but it will also ensure the stabilisation and effectiveness of the international and domestic carbon market.

It is in Australia's national interest to ensure that once the first Kyoto period expires it is replaced by an effective secondary phase. A key component of this is ensuring the CDM continues to operate efficiently.