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The CDM is a mechanism set up under the Kyoto Protocol
(3). It provides an incentive for developed countries to invest in
climate-friendly technologies and activities in developing countries.
Under the CDM, investments are made in greenhouse gas emission reduction
or sequestration technologies and activities in developing country parties
in exchange for the issuance of credits (which are called Certified
Emissions Reductions). These credits can be used by developed countries
to meet their Kyoto Protocol targets to
limit greenhouse gas emissions. Both public entities (eg governments)
and private enterprises (eg companies, individuals, and non-governmental
organizations) may participate in CDM projects.
There are a number of eligibility rules (1.1)
governing the types of activities that can be proposed as CDM
projects. Preparations (1.3) are needed before
embarking on CDM projects including legislation,
national institutions and decision making processes (1.3). Institutional
preparations in other countries (1.3.1) may help to provide ideas
on ways to proceed. Government officials in small island developing countries
may wish to consider the pros and cons (1.2)
of accepting CDM investment and a negotiating strategy
(1.4) for discussions with investors. There are international institutions
that it is important to be aware of, such as the institutions
that administer the CDM (1.6) and donor institutions such as international
financial institutions (1.4.1) and government institutions (1.4.2) that
may invest in CDM projects.
The CDM project cycle (1.5) is a series of steps
established under the international rules that must be followed to establish
a CDM project and gain Certified Emission Reductions
(CERs) from it.
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Brief description of a CDM project
Typically, a local developer, foreign company, or institutional
investor (a project proponent or
project participants will identify
an investment that would lead to reduced greenhouse gases in a developing
country. For example they may own an electricity generator that
runs on diesel oil. This generator can be made to run more efficiently
using less energy and with fewer greenhouse
gas emissions or can even be replaced by energy generation from
a renewable energy source.
The project participants will approach the government of the country
the investment is located in for approval. The government will decide
whether the project meets it sustainable development needs and whether
to approve it as a CDM project. The government of a foreign investor
may also have to approve the project. The project participants must
establish the baseline (1.5.1.1) against which the greenhouse gas
reductions will be measured and have them independently verified
(1.5.4), and register the project with the CDM Executive Board (1.6.2).
The project participants must then continue to monitor (1.5.3) the
actual emissions that occur, and have them independently verified.
If ongoing emissions turn out to be below the baseline level, the
CDM Executive Board (1.6.2) awards “Certified
Emission Reductions” (CERs) to the project proponent. These
CERs can be used by a foreign investor to meet climate change obligations
in developed countries or sold by the project participants on the
international market for greenhouse gas emission reductions.
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Link to further information: www.unfccc.int
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