Clean Development Mechanism (CDM)
The purpose of the CDM is to promote clean development in developing countries. The CDM is one of the Protocol’s “project-based” mechanisms, in that the CDM is designed to promote projects that reduce emissions.
The Clean Development Mechanism (CDM) is one of the “flexibility” mechanisms defined in the Kyoto Protocol. It is defined in Article 12 of the Protocol, and is intended to meet two objectives:
(1) to assist parties not included in Annex I in achieving sustainable development and in contributing to the ultimate objective of the United Nations Framework Convention on Climate Change (UNFCCC), which is to prevent dangerous climate change;
and (2) to assist parties included in Annex I in achieving compliance with their quantified emission limitation and reduction commitments (greenhouse gas (GHG) emission caps).
“Annex I” parties are those countries that are listed in Annex I of the treaty, and are the industrialized countries. Non-Annex I parties are developing countries.
The CDM is based on the idea of emission reduction “production”. These reductions are “produced” and then subtracted against a hypothetical “baseline” of emissions. The emissions baseline are the emissions that are predicted to occur in the absence of a particular CDM project. CDM projects are “credited” against this baseline, in the sense that developing countries gain credit for producing these emission cuts.
Objective (2) is achieved by allowing the Annex I countries to meet part of their caps using “Certified Emission Reductions” from CDM emission reduction projects in developing countries (Carbon Trust, 2009, p. 14). This is subject to oversight to ensure that these emission reductions are real and “additional.” The CDM is supervised by the CDM Executive Board (CDM EB) and is under the guidance of the Conference of the Parties (COP/MOP) of the United Nations Framework Convention on Climate Change (UNFCCC).
The CDM allows industrialized countries to invest in emission reductions wherever it is cheapest globally (Grubb, 2003, p. 159). Between 2001, which was the first year CDM projects could be registered and by 2012, the end of the Kyoto commitment period, the CDM is expected to produce some 1.5 billion tons of carbon dioxide equivalent (CO2e) in emission reductions. Most of these reductions are through renewable energy, energy efficiency, and fuel switching (World Bank, 2010, p. 262). However, a number of weaknesses of the CDM have been identified (World Bank, 2010, p. 265-267). Several of these issues are addressed by a new modality, the Program of Activities (PoA) that moves away from accrediting single projects but bundles all projects of one type of activity and accredits them together.