C. Barriers to Implementation
Article 12(5)(b)-(c) of the Kyoto Protocol states that "emissions reduction resulting from each project
activity shall certified by operational entities. . . on the basis of: (b) real, measurable, and long term benefits
related to the mitigation of climate change; and (c) reductions in emissions that are additional to any that would
occur in the absence of a certified project."
In order to implement these provisions, a operational entity will have to decide on a baseline so as to compare
what happened as a result of the project to what would have happened in the absence of the project. The determination
of the baseline may, however, be politically difficult. A developed country seeking credits from projects in a
developing country will wish to show that emissions would have been exceedingly high without the project, while
developed countries not engaged in projects in the developing country will seek to show that emissions would still
have been relatively low, thus preventing the first developed country from gaining economically valuable credits.
Because of the potential for political conflict, the operational entity called for in Article 12(5) must be independent
of the Parties. Although political interests
may not be eliminated entirely, an independent entity will be more isolated from their influence.
Determining baselines also presents severe technical problems because baselines must be calculated to account for leakage. The basic scenario for leakages is as follows: country A uses a technology which is more efficient than that in country B, country A closes plants in country A and moves them to country B, resulting in an emissions reduction in country A by reducing activity and reductions in country B by importing new technology. Because emissions are reduced in both countries, it is possible to double count the action of country A, noting the emissions reduction at home and granting credits for the project in country B. One commentator suggests that double counting can be remedied through considering the actions of the firm in country A as a whole. Although accounting for an aggregate firm would theoretically solve this leakage problem, costs in accounting for the activity of each firm which engages in projects are high. Additionally, there will be serious difficulties in determining which country should receive credits when a project is undertaken by a multinational corporation. One approach to mitigating these baseline concerns would be to use general guidelines, including "whether the baseline is consistent with the standard of environmental protection in the host country, whether it is consistent with the business practices in the concerned sector of industry and with trends and changes in those practices, whether a project was altered to take into account considerations related to joint implementation, and whether the contract contains a specific clause allocating the emissions reductions." Although this approach may produce some inaccuracies in the beginning, presumably with more projects the baseline for a country will become refined. The risk of baseline errors may also be reduced by encouraging projects that will not significantly implicate baseline issues, such as projects which substantially reduce GHGs but would probably not result in exporting businesses from home. In this context the power generation industry would serve as a paradigm because the need for clean technology is apparent, and it is unlikely that a country will export a power plant to a developing country in order to generate power for the home country, unless the two countries are contiguous..
Intellectual property considerations will also play an important role in the viability of the CDM. More than 90% of clean technologies involve proprietary knowledge. Thus, companies are unlikely to export technologies that they can not adequately protect in developing countries. The development of the CDM, therefore, must account for international intellectual property rights. The filing of international patents will help mitigate this concern; the World Intellectual Property Organization ("WIPO") notes an increase in filing of patents under the Patent Cooperation Treaty by industrialized and developing countries alike. WIPO is diligently working to educate developing countries in the filing and accepting international patents. With use of the PCT in developing countries increasing, the costs of obtaining protection in these countries will undoubtedly decline. Thus, the problem of international intellectual property rights may be decreasing as international cooperation and trade increases. While the increase in PCT participation will decrease the costs of technology transfer for future inventions, there remains a significant problem of inventions that are already known in the developed country but for which no patent exists in the host country. One solution would be for the CDM to require developing countries to institute a "novelty waiver" method for project technologies. This would allow the developed countries to receive patent protection for technology which is not new to the developed country, but is new to the developing country.
Implementation of CDM may also face significant barriers due to the social and cultural norms of host countries. As discussed earlier, some Chinese policy makers believe that technology transfer is essential to reducing GHGs. However CDM projects may face resistance as other official regard global warming as beneficial because it will lead to increased rainfall an crop production. Conversely, developed countries will not undertake projects in countries which do not maximize the abatement potential of the project. India, for example, suffers large inefficiencies in power generation which are not entirely attributable to technological shortcomings. These inefficiencies are partly due to the institutional structure of public utilities and economic policies such as tariffs on the import of high quality coal. Thus, a project which would lead to two units of abatement in one country may lead to only one unit of abatement in another country. The difference being caused by institutional structures.
Although the theoretical justifications for the CDM appear sound, the practical difficulties of application may prove to be overwhelming. In order for the CDM to be viable, baselines must be assigned to developing countries, leakages account for, international intellectual property rights developed in the CDM context and cultural barriers overcome. However, when the benefits of technology transfer are taken into consideration, the cost of the CDM may be justified.