Clean Development Mechanism

Module Objectives

After going through this module, you should be able to

1. Understand the basics of the concept of Clean Development Mechanism

2. Comprehend the various CDM paradigms
3. Conceptualize the reforms needed in the system

________________________________________________________________________________________
____________________________________________________________________________
The Kyoto protocol is significant in more than one way. It introduced certain flexibility mechanisms to enable
Annexure B countries to meet their emission reduction commitment with minimal impact on their economy.
These mechanism were introduced at the biggest of the developed countries especially the US despite being
opposed by the developing countries. One such flexibility mechanism provided per under the Kyoto protocol is
the Clean Development Mechanism (CDM). The CDM promotes projects that reduce emissions.

The reduction in carbon emission is achieved through the projects under CDM and then subtracted from a
baseline (hypothetical) of emissions. The baseline emissions are those which are highlighted to accrue in the
absence of the CDM. Based on the reduction in emission so achieved credit are assigned against this
baseline (Wikipedia, 2018).

The approved methodologies for calculating baselines are Approved Methodology, Approved Consolidated
Methodology, Approved Methodology for Small Scale projects and Afforestation and Reforestation Approved
Methodologies (Wikipedia, 2018).

According to the carbon trust the Kyoto protocol establish several global incentive mechanism based on offset
credits (CarbonTrust, 2017).

1. Projects in developing countries can generate certified emission reductions through CDMs just as those
in industrialized countries can generate emission reduction units for transfer through Joint
implementation [JI].
2. Advanced Nations can directly trade emission allowances under two schemes
3. Direct Industry Trading [EU]
4. Inter-Governmental Green Investment Scheme[GIS]

These are complementary to the Global Environment Facility [GEF] run by the World Bank since 1990.

An Adaptation Fund was established to finance adaptation projects under CDM.

Experts argue that the CDM has been a grand success with around 3000Mt co2 e emission saving in 2012
alone. However the fact is that there has been under performance of the many of the approved projects. The
1st Direct Inter Governmental emission sale under the protocol was finalized in 2008. India for instance has
been one of the largest receipt of clean development projects. By 2011 around 2300 projects had been
registered in India. Only China has more projects. Most of India CDM projects are located in industrialized
states, while less industrialized ones have not fully accepted the philosophy of CDMs .In fact the hands off
approach to CDM projects in India makes it difficult for these projects to be diverted to less industrialized
states. (J, 2017)

One of the major criticism leveled against the CDM was that it ran the risk of creating adverse policy incentives
to worsen the baseline on which the calculations of emissions are made. The fear is that creating emission
saving relative to baseline gives disincentives to improve on domestic policy. Back dating of baseline seem to
be a way out. Secondly there was criticism against paying uniform carbon price for costly and cheap projects.
This would inevitably results in creating large profits for cheap projects. Another criticism leveled against the
CDM is the lack of effective alternative approaches. In addition there have been implementation issues too.
The success of CDM projects is judged on the basis of emission saving. Assessment of such saving is fraught
with judgemental complexities. Each mode of assessment can be challenged on the basis of another .Each
projects needs to be judged on the basis of its own credentials.
Another criticism leveled against CDMs is that it has focused more on certain regions like China & India
where as the poorest regions of the world such as Sub-saharan Africa have benefited the least from it.
Further there are a number of excluded areas such as nuclear technology and certain others such as
infrastructure & forestry are also least encouraged. These are areas which can yield massive results.
Innovation supports has been seen as wanting in the case of CDM .Without innovation support new
technology may not arrive in the market.

Award on emission trading

Inter environmental emission trading was already in vogue among EU member States. The same was
transferred as national obligation under the Kyoto protocol. The obvious challenge to achieving targets under
the protocol was the fact that most OECD countries fell short of delivering the targets, but sought to make good
the same by acquiring units. The net result was that there was no substantial reduction in emission. Additional
efforts were not made by importing countries to reduce their emissions. The only redeeming feature was that
though the Kyoto protocol was signed during the years of industrial contraction in the transition economies,
industrial revival was associated with introduction of fuel efficient and environmental friendly technologies. As a
result, recovery did not increase emissions in these countries. The transition “surplus” generated by these
countries gave them avenues for selling the surplus to high polluters while providing resources to the transition
economies. Outright sale of emissions is not a very feasible propositions. Innovative mechanism have to be
evolved. For instance, Latvia enacted legislation for targeting emissions by selling their Kyoto surplus to
projects that would reduce their emissions overtime. It was followed by Hungary and Ukraine. Such schemes
are termed as Green investment Schemes (GIS). The first transaction under GIS was in 2008 when hungry
sold 8 Mtn co2 e of the Kyoto allowance to Belgium and Spain. The typical GIS activities involves Hard greening
or soft Greening . Hard greening involves retro-fitting old buildings, constructing energy efficient building,
installing eco friendly energy generation units, installing efficient green heating systems and establishing
renewable energy plants. Soft greening schemes creating climate challenge awareness among people,
monitoring climate change and climate change system and capacity building through climate related legislation
and policy making.
The advantage of Green Investment Scheme over project based CD mechanism can be identified
as follows:
One of the salient advantage is the degree of flexibility that they offer. They are free from the project by project
additionality requirement and encompass a wide variety of schemes. Unlike projects based CDM schemes,
they can enter into a wide variety of areas such as waste reduction, renewable energy schemes, building
refurbishment and so on.
 The time line given for using emission allowances is also substantially great under GIS. These can be
effectively utilized after the 2012 deadline imposed by the Kyoto protocol.

The greatest advantage of GIS is up front financing. CDM and Joint Implementation financed projects against
expectations of future generations of credit where as GIS involve an immediate transfer of National emission
allowances.
GIS is effectively a government led mechanism and the emission allowances can be utilized for
complaince with Kyoto obligations only. Though private sector can be involved, it can be only be done in an
indirect manner.
GIS also provides a lot many socio economic and ecological benefits. For example building energy efficient
system can not only improve the quality of life but also save the environment. Private sector is not allowed to
cash in these benefit for profit. They can only be used for public welfare.
The need for reforms
The major reforms that need to be undertaken on the CDM are as follows (Grubb, 2009):

1. There is a need for democratizing the CDM executive board by including wider membership. Its agenda
also needs refurbishment. Its preoccupation with immediate issues leave it with no time to discuss
issues of long term importance
2. There is a need to reframe CDM projects additionality and eligibility rules. The assessment methodology
to determine incrementalism is an important area warranting reforms.
3. Project crediting rules need attention and reforms. The top down approach needs to be changed with a
down to top approach. Special mechanism should be evolved to assess the contributions of projects in
doubt. The Geographic distribution of projects should be improved.
4. The sector based and policy based crediting system should be considered as distinct mechanism since
they reflected departure from the original projects by project assessment scheme.
5. All decision making should involve Special and Differential Treatment to developing countries and
LDCs. The developed countries those have attained their present growth over 2 centuries while the
developing countries have attained a high trajectory of growth only over the last 2 decades. Therefore
higher levels of emissions are inevitable in the case of developing countries.
6. Wider sectoral focus by including areas such as transportation, social forestry, agriculture and
construction industry would bolster CDMs.
7. CDMs have to involve longer term investments based on innovation and infrastructural choice. A system
on the lines of the Global Carbon Mechanism could be a fruitful addition.

Let Us Sum Up
The CDM is one of the major innovations introduced by the Kyoto protocol. However, the mighty expectations
raised by the concept have mostly been belied. The sparse spread of CDMs in Afro Asian countries is indeed a
cause of concern. However, reforming the mechanism can provide long term benefits to the environment. The
earlier it is done, the better it will be!

Reference
CarbonTrust. (2017). Retrieved from [Link]
Grubb, M. C. (2009). Global Carbon Mechanisms-Emerging Lessons and Implications. Carbon Trust.
J, U. (2017). Clean Development Mechanism in India- Is it working? Retrieved from
[Link]/[Link]?article_id=58
Wikipedia. (2018). Retrieved from [Link]