The Clean Development Mechanism Continues to be Plagued by Uncertainties over Past Performance and Future Role

by Shelley Welton
Deputy Director

Just as the Kyoto Protocol is near a moment of crisis (the Protocol’s first commitment period is set to expire in 2012 unless the parties reach an agreement to extend it at the upcoming Conference of the Parties in Durban, South Africa, this November-December), the future of the Clean Development Mechanism (CDM) also hangs in the balance. 

The CDM is a program that allows developed countries to meet some of their Kyoto Protocol emissions reduction obligations by financing projects that cut carbon emissions in developing countries.  These projects earn “credits” that can be sold in the developed world—at the moment, primarily to countries participating in the European Union Emissions Trading Scheme (EU ETS)—and used toward meeting these countries’ carbon reduction obligations.  Ideally, the program both reduces the cost of Kyoto compliance for developed countries and helps set developing countries on a path to sustainable development.

The CDM has now registered over 3,500 projects across the developing world (though heavily concentrated in China and India), which will purportedly produce an annual average 530,310,752 tons of C0-equivalent emissions reductions (approximately the same amount as Canada’s annual CO2 emissions).  But for years, the CDM has come under criticism for approving projects that would have been built anyway and thus should not have qualified for credits, and worse, for approving projects that receive credits but do not actually reduce carbon emissions.  The issue has drawn renewed attention this fall after Wikileaks released a cable in which a U.S. diplomat described parts of the CDM’s project approval process as “arbitrary” and suggested that many CDM projects in India never should have been accepted.[1]   

Program flaws have caused the EU to adopt rules severely restricting the future participation of CDM credits in its carbon trading market.  Beginning in 2013, the EU will only accept credits from projects registered in “least developed countries” and will not accept credits generated from industrial gas destruction projects, which are thought to be one of the least environmentally sound types of CDM projects.  New Zealand and Australia are considering similar regulations. 

Added to these continuing controversies is the question of what happens to the CDM if countries do not reach an agreement on a second commitment period for the Kyoto Protocol in Durban.  Without Kyoto commitments driving a carbon market, many have expressed concern (and some critics have expressed hope) that the CDM’s future is in jeopardy. 

Durban presents a critical opportunity for a serious re-assessment of the CDM and its place in meeting the ultimate goal of stabilizing worldwide carbon emissions.  The CDM’s Executive Board has called for a comprehensive dialogue on the future of the program and will set forth plans for the shape this dialogue will take at its next meeting, which begins today, Monday, October 24th.  Despite its flaws, many still see the CDM as having a vital role to play both in helping countries reach a post-2012 agreement, and in narrowing the gap between poor and rich countries without replicating rich countries’ high-carbon growth trajectories.  Critics and proponents alike should seize this chance to discuss whether and how to shape the CDM into a program that delivers on its potential.  

[1] See Quirin Schiermeier, Clean-energy credits tarnished, Nature 477, 517-18 (2011). 

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