Clean Development Mechanism

There are three 'flexibility mechanisms' under the Kyoto Protocol to the UNFCCC. These are:

• The Clean Development Mechanism (CDM), which allows developed countries (Annex 1 countries) with emission caps to undertake greenhouse gas emission reduction (or emission removal) projects in developing countries where there are no emission caps, in exchange for emissions credits

• Joint Implementation (JI) projects, where developed countries undertake emission reduction projects in other developed countries

• International emissions trading

CDM projects generate emission credits called Certified Emissions Reduction (CER) units, where one CER is equivalent to one tonne of CARBON DIOXIDE (CO2) or its equivalent for the other GREENHOUSE GASES. The CER units from these projects are used to offset some domestic emissions in the industrialised countries. They can also be traded or sold between countries.

Under the Kyoto Protocol, the aim of the CDM project is to provide real, measurable and long-term benefits relating to the mitigation of climate change. It must produce a reduction in emissions that would not occur in the absence of the particular project undertaken. This is known as the concept of 'additionality'. Article 12.2 of the Kyoto Protocol to the UNFCCC states that the aim of CDM is to assist non-Annex I countries (developing countries) to attain sustainable development through low-carbon technology transfer, while assisting Annex I countries (developed countries) in achieving their reduction commitments. This thus contributes to the ultimate goal of preventing and arresting dangerous anthropogenic interference with the climate system.

Article 12 of the Kyoto Protocol to the UNFCCC, and subsequent accords, create three main requirements for CDM projects: sustainable development, 'supplementarity' and 'additionality'. A project must contribute to sustainable development in the host country. However, the Kyoto Protocol provides little guidance on the definition of sustainable development, relegating that policy operational decision to each developing nation's project approval authority. 'Supplementarity' requires that use of the flexibility mechanisms be supplemental to domestic actions of mitigation, not substitutional.

To date, more than 252 million CER units have been issued globally, and to the end of 2012, a further 1.5 billion credits are expected to be issued from registered CDM projects. These figures are continually increasing as additional CDM projects are registered and commence operation. More than 70 per cent of CDM projects are hosted by China, India and Brazil (where China is the clear leader), despite the fact that a total of 76 developing countries participate in the scheme.

The most common projects involve renewable energy systems, representing more than 60 per cent of expected CDM projects. Of those and overall, hydropower is the most popular CDM project type, closely followed by the production of biomass energy and wind power plants. Although hydropower is the most popular CDM project type, more emission reductions are accomplished through HFC (a potent greenhouse gas and by-product of refrigerant gas production) emission reduction projects. There are just 23 HFC projects, which together represent the biggest reduction in greenhouse gas emissions, and therefore generate the largest number of CERs, of any CDM project type. This is because the destruction of HFC refrigerant gas is cheaper than other projects for the produced emission reduction. Another important CDM project type is the reduction of NITROUS OXIDE (N2O). Just 66 projects make this activity the fifth most important CDM project type in terms of generated CER units. Global concern has arisen over the predominance of HFC and N2O reduction projects, in the context of the CDM, and has led to a UNFCCC ruling against new HFC destruction CDM projects. The concern is that the main greenhouse gases, namely CO2 and CH4, are not being mitigated.

In contrast, the contributions of afforestation and reforestation CDM activities are almost negligible, both in terms of project numbers and emission reduction value. The first small-scale afforestation project has only just recently been registered by the CDM Executive Board. Some critics of the CDM scheme have raised this as a weakness of the system. For other weaknesses of the CDM and the possible changes being negotiated, see the Library's publication The Kyoto Protocol's Clean Development Mechanism.

In the context of Australian emissions trading, the Australian Government’s policy position is to allow an unlimited number of eligible international units to be accepted for CPRS compliance. It considers that accepting international emissions credits has the potential to control domestic costs, provide support for the international Kyoto Protocol architecture, promote technology transfer, and facilitate Australia’s involvement in international carbon markets.

The CDM seems to provide the opportunity for economic benefits for trading partners, yet remains a problematic institutional policy mechanism owing to its reported inefficiency, inequity, and sustainable development concerns. It is therefore likely to be the subject of significant attention at the fifteenth conference of the parties, which is scheduled to be held in Copenhagen, Denmark between November 30 and December 11, 2009.

Further reading:

L Nielson and A Talberg, The Kyoto Protocol's Clean Development Mechanism, Parliamentary Library, Canberra, 2009

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