6.8.3.7 The Kyoto Protocol’s Flexibility Mechanisms

The flexibility mechanisms of the Kyoto Protocol (KP), especially the clean development mechanism (CDM) and joint implementation (JI), could offer major benefits for buildings in developing countries and economies in transition, in terms of financing, transfer of advanced technologies and know-how, building of local capacity and demonstration effects (Woerdman, 2000; Grubb et al., 2002). Buildings should be prime targets for project-based mechanisms due to the variety and magnitude of cost-effective potentials (see section 6.5). For instance, Trexler and Associates (Margaree Consultants, 2003) estimated that building and appliance efficiency accounts for 32% of total potential in CDM in 2010 under 0 US$/tCO₂ and 20% under 20 US$/tCO₂. However, evidence until 2006 shows that little of this potential is expected to be unlocked during the first commitment period (Novikova et al., 2006). After initial enthusiasm in the activities implemented jointly (AIJ) phase, where 18 out of 156 registered projects were targeted to buildings, JI and CDM experience to date suggests that this pilot phase brought disappointment in building-related projects. As of February 2006, only four CDM projects out of 149 projects registered or seeking validation were for buildings, and none of the 152 approved and submitted JI projects was due to invest in buildings (Novikova et al., 2006).

While it is too early to conclude that the Kyoto Protocols’s project-based mechanisms do not work well for buildings, there are no indications that this trend will reverse. A number of barriers prevent these mechanisms from fully mobilizing their benefits for buildings (Tangen and Heggelund, 2003; ECON Analysis, 2005). Chief among these is the proportionately high transaction costs due to the relatively small size of building-related projects: although these costs are around 100 €/tCO₂ (124 US$/tCO₂) for building-related projects, they amount only to 0.1 €/tCO₂ (0.12 US$/tCO₂) for very large-scale projects (Michaelowa and Jotzo, 2005). While a few hypothetical solutions have been suggested to overcome the barriers (Novikova et al., 2006), their implementation is uncertain. Another major chance opens for buildings in former communist countries with large emission surpluses through Green Investment Schemes, or the ‘greening’ of these surplus emission units, if they are constructed to accommodate small-scale energy-efficiency investments better than CDM or JI, potentially delivering over a billion tonnes of real CO₂ reductions.

In summary, if the KP is here to stay, the architecture of the flexible mechanisms could be revisited to address these shortcomings, so that the major opportunities from buildings in developing countries and EITs do not stay unutilised. A potential criterion for appraising climate regimes – in terms of their success in leveraging lowest costs mitigation options, as well as in meeting sustainable development goals – could be their success in promoting buildings-level investments in developing countries and economies in transition, reflecting their recognized importance in minimized-cost global emission mitigation efforts.