A powerful tool for sustainable development is to creatively use market mechanisms. Idealism is valued, but market mechanisms are more effective tools for real and sustainable change – in particular when they can create a win-win situation. This may well be by creating markets where demand does not yet exist.
The Kyoto Protocol – with its mechanism for quota trading – is a good example of how business and market incentives are built into an international ambition for protecting the environment. The objective of these mechanisms is to initiate projects that lead to additional emissions reductions of CO2 and other greenhouse gases. The mechanisms provide both buyer and seller with economic incentives. In this manner the mechanism of quota trading helps to reduce emissions at the lowest possible cost.
In order to make the Kyoto trading mechanisms work, the world needs competent, credible and independent organisations to both validate the realism in the projects and verify the actual emissions reductions.
The quota trading mechanism is dependent on the trust and confidence we are able to bring into the system. DNV is engaged by the United Nations Framework Convention on Climate Change (UNFCCC) in validation, verification and certification of many of the now more than 2,100 Clean Development Mechanism projects as well as in a number of Joint Implementation projects in different stages of their development.
We can confirm that the strict framework defined by the UN has been an important mechanism to secure the trust in the emissions reduction certificates. The certificates are successfully introduced as tradable assets in the market place.
Another aspect we have observed is that the present projects are based on existing technology. The mechanisms therefore lead to a global synchronising of the use of available technology – as intended.
However, new technology also needs to be encouraged. I am a firm believer that the most effective way to address our environmental challenges is by developing new and cleaner technologies. Mechanisms to support the development and introduction of new technology must be found. We need a dramatic increase in our research and development of environmentally friendly technology.
Henrik O. Madsen
President and Chief Executive Officer
Date: 24 October 2007