Clean Development Mechanism and Sustainability

"The CDM and the carbon markets as a whole are one of the great success stories of international cooperative action on climate change." said an UNEP official. The Kyoto Protocol has been hailed as a lifeline to the Earth from disastrous human-caused effects of a warming global climate.

The purpose of the CDM is to benefit both the investor and host countries by contributing to sustainable development in the host developing countries and by allowing investor countries to meet their GHG reduction targets at the lowest possible cost by taking advantage of the lower marginal cost of reducing GHG emissions in developing countries. It is the sole prerogative of the host country to confirm whether the project contributes to their sustainable development. Annex I countries that have ratified the Kyoto Protocol can engage in projects in developing countries to reduce any combination of six greenhouse gases. The Certified Emissions Reduction ( CER ) is then received by the Annex I investor to use to comply with its emission reduction targets. Each CER is equivalent to one tonne of carbon dioxide.

The CDM, the main feature of the Kyoto Protocol, is perceived as a golden opportunity by all countries, developed and developing. It serves not only as an instrument for combating climate change but also as an important stimulus package to fund developing country in sustainable development, and endless source of business opportunities for corporations.

Individuals and private or public organizations can participate in CDM projects. CDM projects are designed to encourage investment in and transfer of environmentally safe technologies that reduce emissions of greenhouse gases. These projects can only be undertaken in developing, or non-Annex I, countries that have ratified the Kyoto Protocol.

CERs can be sold and bought in
the carbon market, facilitating industrialized countries to meet their reduction targets under the Protocol. The CDM provides a means for developing countries to take part in this growing trade. It is a win-win mechanism for de-carbonizing the world. Within a few years after the Protocol was effected, more than 800 projects have been registered, with almost another 2 000 in the pipeline. By 2008 year end, there are 4200 projects.

New institutions have been created to facilitate CDM projects. A ten-member Executive Board has been appointed by the UNFCCC to oversee CDM projects. Their efforts continue to refine the rules and procedures of CDM projects.

The CDM Dual Products: CERs and Sustainable Development

CDM can be view as a 3-pronged strategy in climate change mitigation:

Stimulates sustainable development in developing countries,
Reduces greenhouse gas emissions,
Gives industrialized countries some flexibility in how they meet their emission reductions.

UNEP.- Year End (2008) Snapshot of the CDM

The table below shows the cumulative number of CDM projects in all three project phases: Validation, Requesting Registration and Registered.

Host Region	2004	2005	2006	2007	Nov	2008	2012
Asia & Pacific	18	305	865	2 074	3 240	76%	8 300
Latin America	41	208	454	626	814	19%	1 600
Africa	2	15	34	52	87	2%	250
Middle-East	0	1	9	28	54	1%	100
E. Europe/C. A.	0	5	14	29	42	1%	80
Total global	61	534	1 376	2 809	4 237	100%	8 300

It is estimated that by 2012, over 8,300 CDM projects may be up and running or in the pipeline generating financial flows amounting to over $30 billion, involving a more spread out global participation.

Basic Criteria for Successful CDM Projects

Based on the success records of CDM projects in some countries, the following are criteria that promote CDM projects:

Good Institutional Arrangement
The country must have a good institutional arrangement that facilitates fast approval of projects, provides clear guidance on approval criteria and involves all relevant approving agencies.

Stable Investment Climate
The country must have good governance, clear taxation regulations, easy movement of funds, incentives for foreign investment, particularly on clean technology as well as stable political situation. Many a time, the investors from developed countries prefer to invest in selected countries despite comparatively higher investment costs because of the confidence they have in the host country.

High Level of Awareness regarding CDM Potential
The local project developers should have high awareness on the CDM potential or else they could spend unnecessary time and money on project feasibility studies. Local consultants should be available to assess the qualification feasibility of CDM. Industry awareness is still lacking with respect to its CDM eligibility potential, in many developing countries.

The objective of the Protocol is noble, but the complex trading system has been open to abuses. Problems emerge due to serious flaws in the checking system on actual achievement in GHG reductions. Under the Kyoto Protocol, a CDM project needs to demonstrate that it will lead to a quantifiable reduction in greenhouse gases. Under the "additionality" principle, it also has to demonstrate that it would not have been economically viable without the additional capital generated by carbon trading.

It was estimated that up to 20% of the carbon credits issued did not match genuine reductions. The system thus risks creating a false sense of security. Critics have argued that the CDM process has been manipulated, particularly by the owners of large-scale hydropower plants, which remain environmentally controversial.

Besides questioning the effectiveness of carbon markets, critics also argue that carbon credits can be a way for an organization to throw money at a problem instead of taking action to reduce their own carbon footprint of their operations.

Rectifications needed for the Kyoto Protocol CDM:
1. It does not include schemes that preserve tropical rainforests. Some countries, notably Brazil, Congo, Guyana, Indonesia are endowed with huge rainforest resources. Deforestation activities are rife and emit carbon dioxide resulting in the rapid shrinking of these rainforest covers.

At the preparatory conference of the climate change road map held in Bali early 2008, countries including the US and China agreed to include deforestation issues. Inclusion will create carbon market incentives for sustainable forestry management. Presently, countries like Brazil, Guyana, Congo and Indonesia continue their effort to identify strategic investments opportunities along an incentive-based mechanism of the like of CDM.

2. The benefits of the CDM are not evenly enjoyed. The lion share of the cake goes to the rapidly developing countries like China, India and Brazil.

Country	CDM Projects registered or in the pipeline 2008	Number of projects as at Jan 2010
China	1557	722
India	1135	478
Brazil	330	166
Middle East	54	NA
Eastern Europe/ Central Asia	42	NA
Mexico	200	120
Chile	60	36
Malaysia	145	78
Indonesia	100	43
Africa	NA	36

To facilitate greater participation in CDM, for the developing countries,
India plans to devoting 2% of its GDP annually to mitigate flood control and tackle food security programs.
China is able to promote cleaner and more resource-efficient development. China has committed herself to reduce emissions by 20% of 2005 by year 2010.
Brazil is planning to reduce deforestation in the Amazon basin by 50%.

While the number of registered or proposed projects in Africa remains small, the CDM is now being glimpsed across almost all countries albeit at a low level. There are many challenges, mainly funding and security, for Africa to attract investments and cash flows to pursue a green and sustainable development.

With the set up of the Nairobi Framework to extend the reach to CDM in Africa countries, the door of CDM opens to the world, the EU, Africa and China, a new horizon that is far and wide. This would help African to realize substantial growth rates and integrate its societies into the global economy.

Some sub-Saharan African countries are currently participating in CDM projects many of which is currently helping to improve the livelihood (afforestation) and income of the people there.

Louis Michel, European Commissioner for Development and Humanitarian Aid, proposed a "ménage à trois" or triangular partnership with China and Africa..... to mitigate climate change...as China's growing presence in Africa is a positive force for the partnership. (August 28, 2008)

References and related news:

UNFCCC Clean Development Mechanism in Brief 2008
UNEP - Global Year-End Snapshot of the Clean Development Mechanism 2008
CDM in CHARTS (version 5.0) -Cdm.ccchina.gov.cn
EU, China to Join Hands for Africa's Development: China.org.cn
A Layperson's Guide to the Clean Development Mechanism: UNCTAD

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