The Clean Development Mechanism

by Puria Radmard

The Clean Development Mechanism (CDM) works to reward developed countries who aid developing countries in their sustainable development. It does this by issuing sustainable development projects with Certified Emissions Reductions (CER), which can be bought as carbon offsets by Annex I countries to count towards their Kyoto commitments, or by companies to be traded on other schemes such as the ETS [1].

There are now 3000 registered projects, and 500 million CERs (permitting just as many tonnes of CO2e emissions) are produced per year. 277 million were used by European companies between 2008 and 2010 to meet their own targets [8].

An important part of CDM projects is their additionality, meaning if it happened because of the CDM, and so if it deserves CERs. Big projects in sustainable development, like power plants or transportation, may have happened anyway as part of the country’s long term plan.

But since two thirds of all CDM projects are large, and generate 96% of all CERs, estimates “At least 40% of projects are non-additional.” [2] EU estimates say that 73% of CER supply has a low likelihood of being additional, and only 7% has a high likelihood [3]. They go on to break it down by sector: energy and lighting projects were probably going to happen anyway, but projects related to methane are most likely to be additional.

On the flip side, there is the Low Hanging Fruit (LHF) problem – the risk that a developing country will have all of its cheaper emissions reduction projects taken by the CDM. When the time comes for them to have their own reduction targets, they’ll only have the bigger, more expensive projects left [4]. The big example of a ‘graduating’ country dealing with the LHF problem is China, where low GDP areas attract more CDM projects, amplifying the problem [5].

By 2012, China made up 60% of all CER production, followed by 13% in India [6], likely because of their favourable economic conditions [7]. But these countries have a combined 5 coal-fired power plants registered with the CDM. This was controversial not just for the obvious reasons – many say these power plants didn’t even need CDM funding to go forwards [9]!

But we may have bashed the CDM too much. With about 1 billion tonnes reduction up to 2012, the CDM has generated a market worth $19.8 billion in 2010 [8], all based on sustainable development and mitigation. On top of this, many CDM projects involved technology and knowledge transfer, providing a huge impact on jobs creation and infrastructure in the host countries. The CDM also committed $331 million to the Adaptation Fund by October 2015. Read more about their work here.

In the next article, we’ll discuss the CDM’s sister scheme, Joint Implementation.

Categories Economic Concepts/Key Terms and Agreements

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