4118ENV- CLIMATE CHANGE POLICY

Assignment 1
Mitigation: The Clean Development Mechanism
Brendan Ferris (s2835927)
9/8/2014

Introduction
There is no denying it; the human race is contributing to climate change (Kim 2012).
Atmospheric CO2 levels are currently at 400ppm, thats the highest they have been for well
over 500,000 years (Ramirez et al. 2014; National Aeronautics and Space Administration
2014). This increase in carbon causes an increase in global temperatures, which has a
devastating impact on natural ecosystems all across the globe (Duic et al. 2003). The Kyoto
Protocol was formed in December 1997 with a primary goal of decreasing global carbon
emissions. During the early 21st century, the Kyoto Protocol put a policy into place which
would reduce annual carbon emissions through a greenhouse gas (GHG) trading scheme; it
was titled the Clean Development Mechanism (CDM) (Burian & Arens 2014; Lecocq and
Ambrosi 2007). Through an in depth analysis of the CDM, this report will explain how the
CDM relates to the United Nations Framework Convention on Climate Change (UNFCCC) and
Kyoto Protocol, outline the main money instruments used in the Mechanism and list the
organisations and counties that are involved with the CDM. Finally the CDM will be
assessed in terms of appropriateness, efficiency and effectiveness to highlight whether or
not this policy is well designed to reduce global CO2 emissions.
The CDM and its relationship with the UNFCCC and Kyoto Protocol
At the UNFCCC in 1997 an extension was added to the Convention which made all parties
commit to reducing their carbon emissions through reduction targets; this is known as the
Kyoto Protocol. Under the Kyoto Protocol, three flexible mechanisms were established; the
CDM, International Emissions Trading (ET) and the Joint Implementation (JI) (Australian
Government 2009; Blass & Fernandez 2010; UNFCCC 1998; UNFCCC n.d.). The CDM is
defined under Article 12 in the Protocol and is currently the biggest carbon-offset scheme in
the world with over 7,500 registered projects (Broh 2014; UNFCCC 2014 A). The CDM
involves industrialised countries undertaking emission reduction projects in developing
countries in order to receive certified emission reduction (CER) credits (equivalent to one
tonne of CO2). The credits can then be used to meet a portion of their emission reduction
target which is set under the Kyoto Protocol (UNFCC 2014 A; UNFCCC n.d.).

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The policy has been designed to encourage sustainable development in developing

countries (non-Annex) whilst giving industrialised countries (Annex I) some flexibility in how
they achieve their emission reduction targets (UNFCCC 1998). The policy benefits nonAnnex countries through cutting edge climate change mitigation projects which also help
to boost employment and economic activity. Industrialised countries also benefit by
receiving carbon emission credits for undertaking sustainable development projects in nonAnnex countries which allows them some flexibility in meeting their specified emission
reduction target (UNFCCC 2014 B).
Money instruments used by the CDM
The CDM uses certified emission reductions (CERs) credits as its monetary unit and as stated
previously, the CERs are calculated at one GHG tonne per unit. The price of CERs is market
driven and structured at a fixed price, floating price or a combination of the two (Lecocq and
Ambrosi 2007). At the completion of a CDM project and once the emission difference has
been monitored, the Executive Board issues the allotted CERs to the Annex I country (Blass
& Fernandez 2010, p. 255). For example in a CDM project, Australia (Annex I) would upgrade
an out dated power plant in Afghanistan with a renewable energy plant. After the project
has been completed and validated, Australia would receive CERs to the volume of emission
reductions achieved by that CDM project (UNFCCC 2014 A). The CDM also includes an
Adaptation Fund where 2% of all CER credits issued are assigned to the Adaptation Fund and
set aside for important sustainable projects in developing countries that are susceptible to
the impacts of climate change (Klein, Schipper & Dessai 2005; UNFCCC 2014 F).
Countries and organisations involved with the CDM
The CDM is administered by the proceedings of the Conference of the Parties (COP) serving
as the Meeting of the Parties to the Kyoto Protocol (CMP). The Conference of the Parties
comprises of delegates from countries involved with the UNFCCC, the Meeting of the Parties
is the annual gathering of the Parties who are involved with the Kyoto Protocol (UNFCCC
2014 B). The CMP has the power to make rule changes within the CDM as well as
designating operational entities that are provisionally accredited by the Executive Board
(UNFCCC 2014 B). At the 7th COP in Marrakesh, Morocco, the CMP assigned the Executive
Board to make recommendations to the CMP regarding all CDM projects (Mendis and
Openshaw 2004; UNFCCC 2014 B). There are also six working groups and panels under the
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Executive Board who (such as the Accreditation Panel and Small-Scale Working Group) who
help make decisions related to CDM projects (Flues & Michaelowa 2010; UNFCC 2014 B).
There are two separate authorities which assist in the CDM project process. Designated
National Authorities (DNA) are national authorities which approve local CDM projects.
Before a CDM project can go ahead, the CMP must receive approval letters from the DNAs
of each participating country. The approval letters must state that the project is of a
sustainable nature and contribute to reducing carbon emissions (UNFCCC 2014 B). The other
authority which assists in CDM projects is the Designated Operational Entities (DEO). These
third party legal organisations are accredited by the CMP to certify the project design
document and verify the carbon emission reduction of the CDM project (UNFCC 2014 B).
The countries involved with the CDM are divided into two core groups. Annex I countries are
classified as industrialised countries who were members of the Organisation for Economic
Co-operation and Development in 1992 (UNFCCC 2014 C). Non-annex countries are
classified as developing countries. Countries were divided into separate groups as it would
be unfair to force the non-Annex countries to limit their polluting, whilst for over 150 years,
Annex I countries have been emitting copious amounts of CO2 (Elzen 2008; UNFCCC 2014 C;
UNFCCC 2014 D). The CDM establishes a beneficial relationship between the two groups by
encouraging Annex I countries to implement cleaner technology and offset projects in nonAnnex countries, allowing them to receive carbon credits (UNFCCC 2014 C).
Information instruments used to monitor and report on the CDM
The CDM Rulebook- Rules Practice and Procedures governs numerous stages within a CDM
project, in particular the development and implementation stages. The Project Design
Document is enclosed within the CDM Rulebook and states how a project is to be
monitored. The Rulebook outlines that all emission reduction records are to be maintained
in a monitoring report and registered by the CDM Executive Board. The monitoring report
will then determine the number of CERs that should be issued to a country after the
completion of the CDM project (UNFCCC 2014 F). For that reason it is then imperative that
the monitoring report is truthful and accurate so the market is not flooded with extra CERs.
As this is a vital stage of the CDM project cycle, a third party NGO is used to administer the
correct implementation of the monitoring report (Boyd & Goodman 2011; Wara 2008).
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Assessment - Efficiency and Effectiveness

The Clean Development Mechanism is an evidence-based policy in that scientific research
has been undertaken before objectives and strategies are designed (Althaus, Bridgeman &
Davis 2007). However, a major liability within the CDM is corruption due to financial
incentives (Lund 2010). For instance, CDM projects are supervised by the DEO which mostly
consists of profit-driven risk management organisations. The project developer employs
these entities which is why they have a tendency to be much more lenient with the CDM
Rulebook as they will generate more business (Streck & Lin 2008). However this also
generates corruption within the CDM which tarnishes its effectiveness.
Another problem with the CDM is how the majority of industrialised nations are primarily
using the CDM as a way to reduce the costs of complying with their Kyoto emission targets
(Boyd et al. 2009; Pearson 2007). Each government is searching for the best economic
projects that deliver large volumes of cheap credits rather than using the CDM the way it
was designed for and build sustainable projects. Further-more, 90% of CERs issued are
coming from CDM projects in Brazil, India, China and South Korea which are considered
nations that are currently undergoing rapid economic growth (Broh 2014; Gupta 2014;
Jung 2006). This distribution bias limits the CDMs intended role and prevents some of the
most worthy Non-annex countries, communities and environments (such as Africa) from
receiving any benefit at all (Boyd et al. 2009; Broh 2014; Burian & Arens 2014; Pearson
2007; Toumbourou 2011).

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Assessment - Appropriateness
As the CDM was the first of its kind, some limitations with its suitability have come forward.
For example, inexperienced auditors have led to problems within the CDM process such as
validation, monitoring and leakage (Strand & Rosendahl 2011). This has resulted in some
unsuitable projects being approved early on as they had minimal technical guidance.
However since more CDM projects have been completed, more in depth guidance
documents are widely available.
There is no doubt that the CDM an appropriate policy. With current uncertainty surrounding
climate change and the health of our planet, it is vital that immediate action be taken in
limiting humans impact on the natural environment. Therefore, the CDM is a needed policy
as it attempts to mitigate climate change rather than not taking action and suffering the
consequences (Hrisch 2013; Huntington & Smith 2011).
Conclusion
In summary this report has critically analysed and assessed the Clean Development
Mechanism. The report has outlined the policy and provided information on several
components of the CDM such as its relationship with the UNFCCC and Kyoto Protocol, the
main money instruments used and what countries and organisations are involved. Finally
the CDM was assessed in terms of being an effective, efficient and appropriate climate
change policy. The assessment highlighted a few minor flaws with the CDM; however these
flaws should be easily amended. Overall I agree with the literature in saying that the CDM
has the potential to be an effective climate change policy after a full policy evaluation takes
place and all limitations are addressed (Althaus, Bridgeman and Davis 2007; Broh 2014;
Gupta 2014).

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