Clean development mechanism
The Clean Development Mechanism (CDM) is an arrangement under the Kyoto Protocol that allows developed countries to invest in climate-friendly projects in developing nations as a means to achieve their own greenhouse gas emission reduction targets. Established to foster cooperation between industrialized and developing countries, the CDM allows developed nations to generate certified emissions reductions (CERs) from projects that reduce or remove emissions in developing countries. Each CER equates to one metric ton of carbon dioxide or an equivalent amount of other greenhouse gases. This mechanism not only aids developed countries in meeting their quantified emission limitation and reduction commitments (QELRCs) but also promotes sustainable development in host nations.
The CDM requires that projects provide measurable benefits beyond what would occur without the initiative, ensuring that real and long-term emission reductions are achieved. Participation in the CDM is open to both public and private entities, although countries must be parties to the Kyoto Protocol and designate national authorities to oversee their involvement. While the CDM has successfully facilitated numerous projects, there are ongoing discussions regarding the equitable distribution of these projects, with a significant concentration in a few countries like India, China, Brazil, and Mexico. The mechanism embodies a dual goal of environmental and developmental benefits, reflecting a complex interplay between global climate policies and local developmental needs.
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Clean development mechanism
Prior to the Paris Agreement, the CDM allowed industrialized nations to fund climate-friendly development in developing nations. It fostered cooperation between the industrialized and developing world, but by giving industrialized nations credit for their actions abroad, it allows them to do less to reduce emissions at home.
Background
Prior to the Paris Agreement, the Kyoto Protocol was the premiere international agreement concerning climate change. Article 3 of the committed developed countries identified in Annex I of the United Nations Framework Convention on Climate Change (UNFCCC) to reduce their emissions of six greenhouse gases (GHGs). These reduction commitments, termed quantified emission limitation and reduction commitments (QELRCs), were spelled out in Annex B of the protocol. To help Annex I parties meet their commitments, three mechanisms were established: joint implementation, emissions trading, and the (CDM). Under the CDM, developed countries were able to invest in or finance projects in developing countries that reduced or removed GHG emissions and used the reductions achieved toward meeting their own emissions targets.
The CDM Regime
The CDM was a project-based mechanism under which projects in developing countries that result in lowered GHG emissions could generate certified emissions reductions (CERs), which developed countries could use to contribute to meeting their QELRCs. The mechanism was established by Article 12 of the Kyoto Protocol, which set out the aims of the CDM. These aims included assisting developing countries in achieving , contributing to the ultimate goal of the UNFCCC, and assisting developed countries to meet their QELRCs. With this design, the CDM provided a dual benefit to the climate change regime: sustainable development benefits to developing countries and cost-effective emission reductions to developed countries. In addition to these, 2 percent of the proceeds of CDM projects were to be put into the Kyoto Protocol Adaptation Fund to finance adaptation activities in developing countries.
Both public and private entities were permitted to participate in the CDM as long as they were authorized by parties to the protocol. Overseen by an executive board and under the authority and guidance of the Conference of the Parties to the Framework Convention on Climate Change, the CDM served as the meeting of the Parties to the Kyoto Protocol (COP/MOP, or CMP).
Operation of the CDM
Under the CDM, developed countries financed projects and invested in projects in developing countries. These projects resulted in a reduction or removal of emissions from the atmosphere in addition to any that would have occurred in the absence of the projects. The difference between the emissions that would have been released (referred to as the baseline emissions) and those actually released, that is, the reductions or removals achieved by the project, were validated and certified by an independent body and issued by the CDM executive boards as CERs. Each CER represented 1 metric ton of reduction or removal achieved. That is, either the reduction of 1 metric ton of atmospheric CO2 or an amount of another GHG that had the same (GWP) as 1 metric ton of CO2.
CERs, also referred to as carbon credits, could then be used by Annex I parties to contribute toward achieving their QELRCs. A CDM project could also be implemented unilaterally. In that case, the investment or financing for the project was provided by an entity in the host country itself, without the involvement of a developed country. The CERs generated by the project could then be sold on the carbon market by the investing entity. Again, Annex I parties could buy and use these CERs to contribute to meeting their targets.
An Example of a CDM Project
An example of a registered CDM project is the West Nile Electrification Project, hosted by Uganda, with Finland, the Netherlands, and the International Bank for Reconstruction and Development as the investor entities. The project inter alia involved the installation and operation of a plant to provide energy and displace the use of diesel-based electricity, as well as the installation and operation of a high-efficiency generator to displace low-efficiency diesel generators at isolated diesel stations and privately owned diesel generator sets.
Operation and Provisions of the CDM
To participate in the CDM, countries were required to be parties to the Kyoto Protocol. In addition to this basic requirement, Article 12 of the protocol and Decision 3/CMP.1 (the third decision of the First Conference of the Parties serving as the meeting of the Parties, 2005) provide more detailed participation requirements. Each country was required to designate national authorities, who served as points of contact for information on the CDM. Developed countries had further requirements, including the need to comply with their methodological and reporting obligations under Articles 5 and 7 of the protocol. In addition, a CDM project provided real, measurable, and long-term benefits related to climate change mitigation, including emission reductions or removals that exceed any that would occur in the absence of the project. For a project to be registered as a CDM project and generate CERs, it had to go through a registration and issuance process, referred to as the CDM project cycle, to ensure that it satisfied these and other criteria.
Participation in the CDM
In 2024, there were 192 parties to the Kyoto Protocol. Of this number, around 135 designated their national authorities, fulfilling the basic participation requirements of the CDM. In 2008, 51 developing countries were hosting CDM projects, and 16 developed countries had invested in the CDM, bringing the total participation to 67 parties. There were a total of 1,184 registered CDM projects.
Status and Trends
Most of the 1,184 registered projects were hosted in Asia and the Pacific region, which had a total share of 65 percent of registered projects. This was followed by Latin America and the Caribbean region, with a total of 32 percent, and Africa, with less than 3 percent of the total. On a country-by-country basis, this distribution sees four countries accounting for about 70 percent of all registered projects. These are, in order of portfolio size, India, China, Brazil, and Mexico. This distribution of projects has been termed inequitable, and discussions are ongoing concerning this inequity. Several actions have been instituted to this end, such as the launch of the Nairobi Framework to catalyze the CDM in Africa.
Context
The CDM arose from a proposal made by the government of Brazil for a clean development fund. This fund was to be replenished through compulsory contributions by developed countries that were in noncompliance with their emission reduction targets under the Kyoto Protocol. Countries welcomed this aspect of the fund for the flexibility it provided to developed countries unable to meet their targets and the potential financial benefits it provided to developing countries. Further negotiations led to agreement on the CDM, and its two core elements provided flexibility and cost-effectiveness for developed countries and financial investment and sustainable development benefits for developing countries.
Key Concepts
- Annex I parties: industrialized nations listed in Annex I of the UNFCCC
- CDM project cycle: the registration and issuance process all CDM projects must go through in order to generate CERs
- certified emissions reductions (CERs): credits for contributing to reduced emissions in that Annex I nations can substitute for domestic reductions
- quantified emission limitation and reduction commitments (QELRCs): Annex I parties’ reduction targets, as set out in of the Kyoto Protocol
Bibliography
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Streck, C., and J. Lin. “Making Markets Work: A Review of CDM Performance and the Need for Reform.” European Journal of International Law, vol. 19, no. 2, 2008, pp. 409–442. doi.org/10.1093/ejil/chn014. Accessed 17 Dec. 2024.
“UNDP CDM Manual: United Nations Development Programme.” UNDP, United Nations, 29 Nov. 2015, www.undp.org/publications/undp-cdm-manual. Accessed 19 Jan. 2023.
Werksman, Jacob. “The Clean Development Mechanism: Unwrapping the ‘Kyoto Surprise.’” Review of European Community and International Environmental Law, vol. 7, no. 2, 1998, pp. 147–158. doi.org/10.1111/1467-9388.00141. Accessed 17 Dec. 2024.