The Clean Development Mechanism (CDM) is a project-based flexible offset mechanism implemented under the Kyoto Protocol that allows crediting of emission reductions from greenhouse gas (GHG) emission abatement projects in developing countries. This section provides an overview about the CDM, its purpose to contribute to sustainable development and help reduce greenhouse gas emissions
Following this dual purpose, the CDM was designed to bring sustainable development to developing countries and to enable industrialized countries to achieve emission reductions in the most cost effective way.
Emission reductions are awarded in the form of carbon credits, called Certified Emission Reductions (CERs). These offset credits can be purchased by companies and governments in Annex I countries to comply with their legally binding or voluntary emission reduction obligations. One carbon credit is equivalent to one tonne of carbon dioxide (CO2). To date, more than 7300 CDM projects are registered, most of them implemented in China and India.
Sustainable development benefits
The CDM has a dual mandate to deliver climate mitigation and sustainability benefits.
At the design stage of each project, project developers specify how the CDM project will contribute to the sustainable development of the host country. In India, this must be specified in the sustainable development action plan, outlining the exact actions that will be implemented to achieve the respective sustainable development benefits.
Every host country defines its own sustainable development criteria that have to be met by the CDM project activity.
Indian sustainability criteria are defined as follows:
Social well-being: The CDM project activity should lead to alleviation of poverty by generating additional employment, removal of social disparities and contribution to provision of basic amenities to people leading to improvement in quality of life of people.
Economic well-being: The CDM project activity should bring in additional investment consistent with the needs of people.
Environmental well-being: This should include a discussion of impact of the project activity on resource sustainability and resource degradation, if any, due to proposed activity; bio-diversity friendliness; impact on human health; reduction of levels of pollution in general;
Technological well-being: The CDM project activity should lead to transfer of environmentally safe and sound technologies that are comparable to best practices in order to assist in up-gradation of the technical base. The transfer of technology can be within the country as well as from other developing countries also.
Despite this fundamental goal to deliver sustainable development benefits, numerous studies and anecdotal evidence show that most CDM projects fail to deliver sustainability benefits. There are several reasons for this failure to deliver on its dual mandate:
1) There is no international sustainability assessment process. Countries that host CDM projects define their own sustainability criteria. In the absence of international guidance, the sustainability criteria usually lack specificity, transparency and stringency.
2) To receive carbon credits under the CDM, only GHG emissions need to be monitored and measured. This means that the contribution to sustainable development has no financial value which puts more value to projects with more emissions reductions than to projects with potentially higher sustainability benefits.
3) There is no mandatory monitoring and reporting process. The lack of an appropriate monitoring mechanism makes it impossible to follow up to the individual sustainable development goals of CDM projects.
4) In addition to the absence of monitoring, there are there are no means to incentivise project participants to fulfil the promised sustainable development benefits in case they are not met.
5) Finally, there is no grievance mechanism in place in case negative impacts of the CDM project occur, for example when facing displacement, job loss or increased pollution. Due to a missing system, complaints against already registered and implemented CDM projects cannot be brought, even though some projects cause significant harm to local populations and the environment.
Addressing this shortcoming of missing sustainable development monitoring in the CDM process, the CDM Executive Board (CDM EB) decided to develop a voluntary reporting tool to highlight sustainable development co-benefits.
Even though the development of this tool can be seen as a first important step to improve the oversight of sustainable development and impacts of the CDM, the tool has significant shortcomings:
- It can only be used by project participants as well as coordinating and managing entities, excluding civil society and potentially affected communities to raise concerns and assess impacts from their first-hand experience.
- The tool has a voluntary character which means that only the project participants that chose to do so provide information about the projects’ sustainability benefits;
- The tool is only a reporting tool and does not require monitoring or verification of the actual sustainability benefits which means that there is no third party verification about the actual benefits;
- Finally, there is no measure in place when negative impacts occur.
Offsetting emission reductions
In theory, each carbon credit generated by the CDM represents one tonne of CO2 reduction. A government or company can purchase carbon credits to stay within its emissions reduction obligations. Using a carbon credit from a CDM project instead of reducing emissions themselves is called offsetting. However, it is important to note that offsetting is a zero-sum game for the atmosphere, as every offset purchased enables the buyer to emit an equivalent amount of GHG. As offsetting only leads to a geographical or sectorial shift of emission reductions, it is of outmost importance that carbon credits are only issued for project activities that are additional.
Additionality = proving that emissions reductions would not happen without the CDM
The CDM requires every project to be additional. This means that the CDM should only provide carbon credits to projects that could not have been built without the extra financial support of the CDM. Therefore, a project can be considered as additional, if it was implemented only because of the incentive created by the CDM. Assuring that a project is additional is fundamental to the environmental integrity of the CDM. If a project would have happened anyway and therefore does not go beyond business-as-usual, it should not get carbon credits as such a project generates credits that are not based on actual emission reductions.
Put plainly, non-additional CDM projects activities increase global emissions because the offset buyer keeps emitting under the assumption that emissions reductions happen elsewhere while in reality they would have happened anyway. Certain project types like large scale power projects, such as hydro power and coal power projects have repeatedly been shown to be business-as-usual.
Baselines = what would happen without the CDM
Another critical aspect of the CDM and its regular failure to bring emission reductions is the setting of so called baselines.
Every CDM project needs to determine the amount of emissions that would have occurred in absence of the respective project. These so called baseline emissions are used to calculate the number of credits a CDM project receives. Therefore, the actual emission reductions achieved due to the project are subtracted from the baseline emissions. Problem in many cases is that baselines do not represent realistic emission amounts, but are rather inflated. This leads to an overall oversupply of Certified Emission Reductions (CERs).
In some cases, project developers artificially increase baseline emissions to increase the number of credits issued.
Attempts to face these problems have been made by introducing standardized baselines. Standardized baselines are not calculated on a project-by-project basis, but are standard estimations of the amount of GHG that would have been emitted if certain types of projects were not implemented. Standardization can be considered a good approach for some sectors if they are designed carefully.
However, determining baselines is one of the crucial steps to guarantee environmental integrity of the CDM and often done using wrong assumptions.
For more information about the CDM and the CDM project cycle see this link.