THE KYOTO PROTOCOL establishes three innovative mechanisms known as joint implementation, the clean development mechanism (CDM), and emissions trading to reduce greenhouse gas emissions. These are designed to help Annex I Parties cut the cost of meeting their emissions targets by taking advantage of opportunities to reduce emissions (or increase greenhouse gas removals) that cost less in other countries.
The CDM was established under Article 12 of the Kyoto Protocol to achieve two goals: to promote sustainable development in the developing nations, and to allow developed (industrialized) nations to earn emission credits by investing in emission-reducing projects in developing nations. To get credits under this mechanism, the project proponent has to prove that the greenhouse gas emission reductions are real, measurable, and that these reductions are in addition to what would have occurred in the absence of the project. These credits can then be used by the nations to meet their targets under the Kyoto Protocol. However, there is a limit on how many an Annex I party can use toward their target (it is restricted up to one percent of the party’s emissions in its base year, for each of the five years of the commitment period).
Current modalities of the CDM include activities that focus on greenhouse gas reductions through several activities, such as afforestation and reforestation (often known as sinks), solar electrification, recovery of energy (biogas) from waste, installation of more energy-efficient boilers, and introduction of cleaner transportation methods. The countries are expected to refrain from building nuclear facilities to generate credits for CDM. It is generally believed that the CDM will generate investment in developing nations and promote the transfer of environmentally friendly or cleaner technologies to developing nations. This would be in addition to the financial and technology transfer commitments under the convention and Kyoto Protocol.
A number of domestic and international governance structures have been set up to oversee the CDM projects. Three key institutions validate the CDM projects: Designated National Authorities (DNAs are usually housed in some government agency or ministry, but in some cases can be outsourced to a private agency), Designated Operational Entities (usually private sector entities, so far about 12 such companies have been accredited), and the CDM Executive Board (EB) that operates under a Member of the Party (MOP) and consists of 10 members and 10 alternates of the EB drawn from all the constituencies of the parties. As of January 2006, about 68 projects were registered with the CDM EB, and, if implemented, could reduce up to 30 million tons of greenhouse gas emissions on an annual basis.
The project cycle of the CDM as described by the United Nations Framework Convention on Climate Change consists of six phases: project activity design, proposal of a new baseline and/or monitoring methodology, use of an approved methodology, validation of the CDM project activity, registration of the CDM project activity, and certification/verification of the CDM project activity. Under the project activity design phase, project participants (or the parties) submit the proposed CDM project activity information using the project design document developed by the EB.
The DNA is the first institution to review a project design document. Assuming everything is in order, the DNA will write a letter of approval saying that all participants are voluntary and that the sustainable development criteria have been met. The next phase in the cycle involves submission of the new baseline methodology (in addition to the description of the project with a list of participants) to the EB for review before the project activity can be registered.
If the project is not using a pre-approved methodology in the project activity, the next phase involves submitting the details of the methodology to the EB for review and approval of the methodology/technology. If the project is using the already approved methodology, the next phase involves validation of the CDM project activity. Under the validation phase, an independent evaluation of the project activity is carried out by a designated operational entity against the requirements of the CDM as defined under the protocol.
To validate a project, the designated operational entity will review the project design document (PDD) to determine if the project’s methodology is in line with approved methodologies, that the claimed emissions reductions and baseline scenarios are accurate, and that the project is "additional." In making its determination, the designated operational entity will also post the PDD on the internet for a 30-day public comment period. After validation, the project is registered, which means that EB has formally accepted the project, a prerequisite for the verification, certification, and issuance of credits related to the project activity.
There is also a final 30-day public comment period while the project is at the EB/CDM. Verification involves periodic review by the designated operational entity of the monitored reductions in anthropogenic emissions of greenhouse gases by sources that have occurred due to the registered CDM project activity. Certification is the written assurance provided by the designated operational entity that the registered CDM project activity has achieved the reductions in anthropogenic emissions of greenhouse gases by sources as verified. After the full cycle has been completed, the credits are granted to the parties involved. Because this is a long process, many parties/nations are discouraged. Emphasis by the EB on the additional reductions due to the CDM project activity, high costs associated with the approval process, and administrative delays hinder the development of many small-scale, community-based CDM projects.
Although this mechanism provides for the transfer of cleaner technologies to developing countries and gives credits to developed countries, there are a few problems. One of the most controversial aspects of Article 12 is that it requires projects to show "reductions in emissions that are additional to any that would occur in the absence of the certified project activity." This requirement has become known as "additional-ity" and is intended to ensure there is a net emissions reduction. This is an important clause, but it is not always easy to establish.
Another controversial aspect of the CDM is the requirement that projects must also help developing countries in "achieving sustainable development." However, under this mechanism, a universal definition of sustainable development was not developed (which could have ensured accountability of the authorities overseeing project approval); instead, individual countries have been allowed to set their own definition of sustainable development and judge whether a project meets these criteria.
Although it was perceived that the CDM projects would help developing countries by transfer of technology and finances, it has been observed that the CDM projects are not that global in scope. This market is heavily concentrated in large, middle-income countries led by India, China, and Brazil, which is consistent with the current direction of Foreign Direct Investment. On the other hand, some of the poorest countries, especially in Africa, have almost entirely been left behind, with only two countries— South Africa and Morocco—to have validated a CDM project (as of September 2006). According to the Prototype Carbon Fund’s report "Carbon Market Trends 2005," published by the World Bank Group, "This under-representation of Africa raises deep concerns about the overall equity of the distribution of the CDM market, as the vast majority of African countries have not, for the moment, been able to pick up even one first deal."
These facts do not support the notion that the CDM would help remove poverty and move the poorest countries to a cleaner path of development.
