June 2013: Vivid Economics has published a report exploring the possible impacts on the Clean Development Mechanism (CDM) market of different designs of a CDM capacity fund, examining possible designs and potential impacts of a fund for existing projects and one for new projects.

The report, which was prepared with financial support from the Secretariat of the UN Framework Convention on Climate Change (UNFCCC), concluded that a fund focused on already-registered projects would require €2.5 – €3.0 billion to significantly affect the price of Certified Emission Reductions (CERs) and the supply-demand balance in the market. It also considered possible designs for such a fund, examining the potential of a universal fund that purchases CERs from any project or a selective purchase fund that imposes restrictions on eligibility of projects.

The report also examines the possible designs of a fund for new (yet-to-be-registered) projects and considers: a revenue-commitment fund that commits to use a certain amount of resources to purchase as many credits as possible at the prevailing market price; a price-floor fund that commits to purchase credits at a certain minimum floor price; and a quantity-commitment fund that commits to purchase a specific amount of CERs credits at an (unknown) price(s). It suggests that a price-floor fund might be the best option in the context of significant demand uncertainty. It also concludes that a new-project fund may need to focus on different locations and project than those common in the CDM to date. [Publication: The Market Impact of a CDM Capacity Fund] [CDM Press Release]