A group of us at the Humphrey School have been working this semester to understand how to design a system for carbon offsets under the Paris Agreement. The Clean Development Mechanism (CDM) was the approach utilized under the Kyoto Protocol. While the CDM led to a really large (and unexpected) volume of trading, a lot of observers have worried about the environmental integrity of CDM credits. The central issue has been how to think about the "additionality" of CDM credits. Assessing additionality requires understanding whether or not investments in CDM projects actually led to emissions reductions that wouldn't have occurred otherwise. This is super tricky because CDM payments are essentially paying for nothing (i.e. they're creating payments for preventing emissions). In the context of international policy, the additionality of the CDM depends critically on the governance of the system (including how to balance domestic sovereignty with international oversight), defining credible baselines of counterfactual emissions scenarios, and a reliable accounting system to track emissions.
Under Article 6 of the Paris Agreement, countries developed pretty vague guidelines for how carbon offsetting might get applied moving forward. Some observers are calling the new system the "Sustainable Development Mechanism" or "SDM." In some ways the SDM might resemble the CDM, but the SDM should also reflect on the lessons of almost a decade's worth of experience with the CDM. COP22 should be an interesting time to see how the lessons of the CDM might get applied.
I've put my head together with three MS-STEP students at the Humphrey School (Haley Bloomquist, Brianna Denk, and Ally Hillstrom) in the Center for Science, Technology, and Environmental Policy, and we've devised a set of guidelines that we think can help improve the performance of the SDM. We propose shifting the SDM towards a system of sectoral offsets that define baselines for entire sectors rather than individual projects. We also suggest starting slow with the SDM with activities initially only hosted in least developed countries, improving governance by complementing the structure of the CDM's Executive Board with stronger oversight, and creating a process of regular reevaluation.
Brianna and I will be taking our briefing document with us to Morocco and we hope to get feedback on our thoughts from key decision makers and stakeholders. Our team is working on a longer report on this issue and we'd welcome any of your thoughts.