It was created to make it easier for the industrialized countries that are parties to the Kyoto Protocol to meet their emissions-reduction targets, while contributing to development in poorer nations at the same time.
Under the CDM, when a project (such as a wind farm) in a developing nation results in an overall fall in emissions it will receive ‘carbon credits’, called Certified Emission Reductions (CERs) based on the amount of emissions that have been reduced.
An industrialized country (or a company based there) that needs to reduce its emissions can buy these CERs instead of investing in emissions reductions at home. The advantage of this is that more emissions can be reduced at a lower cost than by investing in a project in an industrialized nation.
For a project to qualify, applicants must get the permission of the host country and then apply to the CDM Executive Board for approval.
The applicants must demonstrate “additionality’ — meaning that the project will result in a greater reduction in emissions than would have happened anyway — and they must explain how much emissions would rise if the project did not go ahead.
An independent organization must then validate the proposed project to check that it will lead to real, measurable, and long-term emission reductions.
The CDM Executive Board then decides whether or not to register (approve) the project. By March 2010, the board had registered over 2000 projects and was processing 4000 more (All meeting reports can be found here).
Most of the early projects were to reduce industrial gases, notably hydrofluorocarbon-23 (HFC-23) and nitrous oxide (N2O). Today most new projects are in renewable energy and energy efficiency.
A little-known benefit of the CDM is that it raises money to help some of the world’s most vulnerable countries to adapt to climate change. This is because a two percent levy on each CDM transaction is transferred into the UNFCCC’s Adaptation Fund.
As the CDM was worth nearly US$3 billion in 2009, this is a considerable source of private capital.
Among the criticisms of the CDM is the risk of non-additionality — that companies will be rewarded for projects that do not in fact lead to an overall reduction in emissions, or that a project will reduce emissions but that other emissions will increase elsewhere (known as leakage).
Additionality is very hard and costly to measure, and this has created big delays in the CDM project approval process.
CDM-Watch, an initiative of various nongovernmental organisations, acts to monitor CDM projects and identify non-additional or harmful ones. In 2010, the organization alleged that emission reductions from HFC-23 destruction projects under the CDM were actually increasing global greenhouse gas emissions.
Another criticism of the CDM is that it has mostly been of benefit to only a small number of larger and more wealthy developing countries. So far most CDM projects are in China and India. Africa has only about two percent of the total projects, and most of these are in South Africa.
This means that one of the aims of the CDM — to promote clean development in poorer nations — is not being met in the world’s poorest countries.
As the CDM was set up under a multilateral environmental agreement, any changes to its rules must be agreed through international negotiations which take place during meetings of parties to the Kyoto Protocol, under the UNFCCC.
Reporters can follow these negotiations by reading the daily Earth Negotiations Bulletin reports that IISD publishes during each meeting. The UN Framework Convention on Climate Change also has a special CDM website that includes detailed information on the CDM and any moves to change the way it works.
The UNFCCC secretariat has produced five ‘broadcast-ready’ radio stories for dissemination to radio stations in Africa.
A good source of country-specific information is the UNEP Risoe CDM Pipeline, which is a database of CDM projects.