Clean Development Mechanism
The Clean Development Mechanism (CDM) is a United Nations-run carbon offset scheme allowing countries to fund greenhouse gas emissions-reducing projects in other countries and claim the saved emissions as part of their own efforts to meet international emissions targets. It is one of the three Flexible Mechanisms defined in the Kyoto Protocol. The CDM, defined in Article 12 of the Protocol, was intended to meet two objectives: (1) to assist non-Annex I countries (predominantly developing nations) achieve sustainable development and reduce their carbon footprints; and (2) to assist Annex I countries (predominantly industrialized nations) in achieving compliance with their emissions reduction commitments (greenhouse gas emission caps).[2]
The CDM addressed the second objective by allowing the Annex I countries to meet part of their emission reduction commitments under the Kyoto Protocol by buying Certified Emission Reduction units from CDM emission reduction projects in developing countries (Carbon Trust, 2009, p. 14).[3] Both the projects and the issue of CERs units are subject to approval to ensure that these emission reductions are real and "additional". The CDM is supervised by the CDM Executive Board (CDM EB) under the guidance of the Conference of the Parties (COP/MOP) of the United Nations Framework Convention on Climate Change (UNFCCC). Certified Emission Reduction units (CERs) are issued for successful projects, which may be traded in emissions trading schemes.[4] The CDM allows industrialized countries to buy CERs and to invest in emission reductions where it is cheapest globally (Grubb, 2003, p. 159).[5] Between 2001, which was the first year CDM projects could be registered and 7 September 2012, the CDM issued 1 billion Certified Emission Reduction units.[6] As of 1 June 2013, 57% of all CERs had been issued for projects based on destroying either HFC-23 (38%) or N2O (19%).[7] Carbon capture and storage (CCS) was included in the CDM carbon offsetting scheme in December 2011.[8]
Because several countries with high emissions, including the United States and China, either were not signatories of the Kyoto Protocol or were not required by it to reduce their emissions, most of the market for CDMs came from European countries. This, together with the recessions brought on by the global financial crisis and the European debt crisis, resulted in very low demand for carbon offsets, causing the value of CERs to plummet.[9] In 2012, a UN-authorized report said governments urgently needed to address the future of the CDM and suggested the CDM was in danger of collapse. By that point, the value of a CERs had dropped to 5 USD per tonne of CO2 (from 20 USD in 2008);[9] the following year the price abruptly crashed to less than 1 USD.[10] As a result, thousands of projects were left with unclaimed credits. The struggle about what to do with the old credits was a major cause for the perceived failure of the 2019 United Nations Climate Change Conference.[11]
History[edit]
The clean development mechanism is one of the "flexibility mechanisms" defined in the Kyoto Protocol. The flexibility mechanisms were designed to allow Annex B countries to meet their emission reduction commitments with reduced impact on their economies (IPCC, 2007).[4] The flexibility mechanisms were introduced into the Kyoto Protocol by the US government. Developing countries were highly skeptical and fiercely opposed to the flexibility mechanisms (Carbon Trust, 2009, p. 6).[3] However, the international negotiations over the follow-up to the Kyoto Protocol agreed that the mechanisms will continue.
There were two main concerns about the design of the CDM (Carbon Trust, 2009, pp. 14–15). One was over the additionality of emission reductions produced by the CDM. The other was whether it would allow rich countries and companies to impose projects that were contrary to the development interests of host countries. To alleviate this concern, the CDM requires host countries to confirm that CDM projects contribute to their own sustainable development. International rules also prohibit credits for some kinds of activities, notably nuclear power and avoided deforestation.
The CDM only gained momentum in 2005 when the Kyoto Protocol took effect. The initial years of operation yielded fewer CDM credits than hoped for, which was partially ascribed to the underfunded and understaffed oversight bodies.[12]
Purpose[edit]
The purpose of the CDM is to promote clean development in developing countries, i.e., the "non-Annex I" countries (countries that are not listed in Annex I of the Framework Convention). The CDM is one of the Protocol's "project-based" mechanisms, in that the CDM is designed to promote projects that reduce emissions. The CDM is based on the idea of emission reduction "production" (Toth et al., 2001, p. 660).[13] These reductions are "produced" and then subtracted against a hypothetical "baseline" of emissions. The baseline emissions 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.
The economic basis for including developing countries in efforts to reduce emissions is that emission cuts are thought to be less expensive in developing countries than developed countries (Goldemberg et al., 1996, p. 30;[14] Grubb, 2003, p. 159).[5] For example, in developing countries, environmental regulation is generally weaker than it is in developed countries (Sathaye et al., 2001, p. 387-389).[15] Thus, it is widely thought that there is greater potential for developing countries to reduce their emissions than developed countries.
Emissions from developing countries are projected to increase substantially over this century (Goldemberg et al., 1996, p. 29).[14] Infrastructure decisions made in developing countries could therefore have a very large influence on future efforts to limit total global emissions (Fisher et al., 2007).[16] The CDM is designed to start developing countries off on a path towards less pollution, with industrialised (Annex B) countries paying for the reductions.
To prevent industrialised countries from making unlimited use of CDM, the framework has a provision that use of CDM be supplemental to domestic actions to reduce emissions.
The Adaptation Fund was established to finance concrete adaptation projects and programmes in developing countries that are parties to the Kyoto Protocol.[17] The Fund is to be financed with a share of proceeds from clean development mechanism (CDM) project activities and receive funds from other sources.
CDM project process[edit]
Outline[edit]
An industrialised country that wishes to get credits from a CDM project must obtain the consent of the developing country hosting the project and their agreement that the project will contribute to sustainable development. Then, using methodologies approved by the CDM Executive Board, the applicant industrialised country must make the case that the carbon project would not have happened anyway (establishing additionality), and must establish a baseline estimating the future emissions in absence of the registered project. The case is then validated by a third party agency, called a Designated Operational Entity (DOE), to ensure the project results in real, measurable, and long-term emission reductions. The EB then decides whether or not to register (approve) the project. If a project is registered and implemented, the EB issues credits, called Certified Emission Reductions (CERs, commonly known as carbon credits, where each unit is equivalent to the reduction of one tonne of CO2e, e.g. CO2 or its equivalent), to project participants based on the monitored difference between the baseline and the actual emissions, verified by the DOE.
Additionality[edit]
To avoid giving credits to projects that would have happened anyway ("freeriders"), specified rules ensure the additionality of the proposed project, that is, ensure the project reduces emissions more than would have occurred in the absence of the intervention created by the CDM.[18] At present, the CDM Executive Board deems a project additional if its proponents can document that realistic alternative scenarios to the proposed project would be more economically attractive or that the project faces barriers that CDM helps it overcome. Current Guidance from the EB is available at the UNFCCC website.[19]
World Bank (n.d., p. 12) described a number of barriers to the use of the CDM in least developed countries (LDCs).[49] LDCs have experienced lower participation in the CDM to date. Four CDM decisions were highlighted as having a disproportionate negative impact on LDCs: