Clean Development Mechanism - Purpose

Purpose

The purpose of the CDM is to promote clean development in developing countries, i.e., the "non-Annex I" countries (countries that aren't 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). 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.

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; Grubb, 2003, p. 159). For example, in developing countries, environmental regulation is generally weaker than it is in developed countries (Sathaye et al., 2001, p. 387-389). Thus, it is widely thought that there is greater potential for developing countries to reduce their emissions than developed countries.

From the viewpoint of bringing about a global reduction in emissions, emissions from developing countries are projected to increase substantially over this century (Goldemberg et al., 1996, p. 29). 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). The CDM is designed to start off developing countries on a path towards less pollution, with industralized (Annex B) countries paying for these reductions.

There were two main concerns about the CDM (Carbon Trust, 2009, pp. 14–15). One was over the additionality of emission reductions produced by the CDM (see the section on additionality). The other was whether it would allow rich, northern countries, and in particular, 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 kind of activities, notably from nuclear power and avoided deforestation.

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. This wording has led to a wide range of interpretations - the Netherlands for example aims to achieve half of its required emission reductions (from a BAU baseline) by CDM. It treats Dutch companies' purchases of European Emissions Trading Scheme allowances from companies in other countries as part of its domestic actions.

The CDM gained momentum in 2005 after the entry into force of the Kyoto Protocol. Before the Protocol entered into force, investors considered this a key risk factor. The initial years of operation yielded fewer CDM credits than supporters had hoped for, as Parties did not provide sufficient funding to the EB. This left it understaffed.

The Adaptation Fund was established to finance concrete adaptation projects and programmes in developing countries that are Parties to the Kyoto Protocol. The Fund is to be financed with a share of proceeds from clean development mechanism (CDM) project activities and receive funds from other sources.