Carbon Market Watch

For fair and effective climate protection.

Intro to the CDM

UNFCCC New LogThe Clean Development Mechanism (CDM) is a project-based flexible offset mechanism under the Kyoto Protocol that allows the crediting of emission reductions from greenhouse gas (GHG) abatement projects in developing countries. The CDM has two purposes: it should assist developing countries to achieve sustainable development and help industrialised countries to reduce the costs of greenhouse gas abatement. Companies and governments in Annex 1 countries can buy emission reduction credits, called Certified Emissions Reductions (CERs), from CDM projects instead of reducing their own emissions.

Between 2005, when the first CDM credits were issued and by the end of 2012, the CDM is expected to generate 1 billion CERs. As of October 2012, there were 4,700 projects registered and another 247 are seeking registration.

Despite the large number of projects, the CDM has faced serious difficulties in delivering on its dual goal of climate mitigation and sustainable development.

No Climate Benefits

Many CDM projects and the resulting offsets do not result in emissions reductions. This is for two main reasons:

Additionality

The CDM requires each approved project to be ‘additional’. This means that the CDM should only provide carbon credits to projects that could not be built without the extra financial support of the CDM. In other words, projects that would be built anyway, that are business-as-usual, should not get carbon credits because such projects generate credits that are not based on actual emissions reductions. There have been estimates that 20-70% of all CDM projects are non-additional. Learn more

Baselines

Every project needs to determine what its emissions would have been if the project was not implemented. These are called the baseline emissions. The number of credits a project receives is then calculated by subtracting the project emissions from the baseline emissions. The problem is that in many cases, the baselines are not realistic or inflated. In some cases, project developers artificially increase baseline emissions to get more credits. Learn more

No Sustainability Benefits

Despite the fact that the CDM has a fundamental goal to deliver sustainable development benefits to developing countries, there is little evidence that the CDM is actually doing so. Although several small-scale, pro-poor projects are bringing real benefits to local populations, the majority of projects do not. This is in part due to the fact that sustainable benefits have no monetary benefit: only the emissions reductions are monetised as offsets, but not any other benefits. Also, sustainable development is defined by the host countries themselves and many of them have only very general requirements that are not checked by the auditors or monitored. Some CDM projects have actually caused significant harm to local populations and there is currently no grievance mechanism that allows affected communities to bring complaints against a project that is already registered.

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CDM Projects

As of October 2012, there were 4700 CDM projects registered and another 247 are seeking registration. There are many different types of projects that get carbon credits for reducing CO2 or other greenhouse gases. These include:

  • Industrial Projects that destroy the very potent greenhouse gas HFC-23 in HCFC-22 facilities
  • Industrial projects that destroy the greenhouse gas N2O in adipic acid and nitric acid facilities
  • Renewable electricity projects such as: hydro, wind, solar and biomass power
  • Projects that destroy the greenhouse gas methane e.g. from landfills or in agriculture
  • Energy efficiency projects (EE) on the supply-side, e.g. making coal power plants more efficient
  • Improving energy efficiency (EE) o the demand-side, e.g. distributing compact fluorescent light bulbs
  • Switching from a fuel with high greenhouse emissions (e.g. coal) to one with fewer emissions
  • Storing CO2 in trees and soils through afforestation and reforestation

As the graphs below illustrate the some projects have generated very large numbers of credits. For example, there are only 19 HFC-23 destruction projects but they have generated almost half of all issued credits. On the other hand, there are over 5,000 renewable energy projects in the pipeline (about 2,500 of which are already registered), but these projects have generated less than 20% or the credits.

Small Scale Versus Large Scale

The CDM distinguishes between large-scale and small-scale projects. There are different rules for these two project types. In general, requirements for small-scale projects are less strict to reduce costs for project developers. Small-scale project are

  • Renewable energy projects that have 15MW or less of output per year
  • Energy efficiency projects that reduce energy consumption by 60 Gigawatt hours per year or less
  • Other project types that reduce up to 60,000 tons of CO2 annually.

Small scale projects generate much fewer credits. Of the approximately 1,200 projects that have generated credits so far, nearly 60% are large scale projects – yet these 800 projects have generated 96% of all CERs (717 million credits). The 400 small scale projects have generated only about 28 million CERs (4% of credits).

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