Clean Development Mechanism (CDM)
The Clean Development Mechanism (CDM) is one of the three flexible mechanisms contained in the Kyoto Protocol. It allows entities from Annex I (developed) Parties to develop emission-reducing projects in non-Annex I (developing) countries, and generate tradeable credits corresponding to the volume of emission reductions achieved by that project.
The CDM rules govern a number of stages and entities in the CDM, which can be divided into two phases - the development phase and the implementation phase. The typical CDM project cycle is as follows:
The development of the Kyoto Protocol
The negotiations of the United Nations Framework Convention on Climate Change (UNFCCC) concluded in 1992. By the time it entered into force two years later on 21 March 1994, it had become clear that the commitments enshrined in the text would not be robust enough to address dangerous climate change. At the first Conference of the Parties (COP), a decision dubbed the Berlin Mandate provided the context for the negotiation of a protocol to the UNFCCC that would impose more rigorous obligations. After two and a half years of negotiations a protocol to the UNFCCC was adopted on 11 December 1997 at COP 3 in Kyoto, Japan (the Kyoto Protocol).
The adoption of the Kyoto Protocol marked a watershed in the global response to climate change, setting for the first time quantitative restrictions on emissions from industrialised countries. It also established the architecture for three flexible mechanisms to address climate change, including the Clean Development Mechanism (CDM). However, the nature of the negotiations leading to the Kyoto Protocol precluded discussion of detailed rules for its mechanisms. Further rounds of inter-governmental talks would develop the procedures of the CDM that now govern the creation and trading of legal rights derived from the management of anthropogenic greenhouse gas emissions.
The entry into force of the Kyoto Protocol and the development of detailed rules for the CDM
The signature of the Kyoto Protocol in 1997 was followed by a period of discussion between the Parties to the UNFCCC about the detailed rules of the CDM (and the other flexible mechanisms). This dialogue continued for a number of years, culminating in a series of decisions at COP 7 in Marrakesh, Morocco in 2001 (the Marrakesh Accords).
The Marrakesh Accords adopted, amongst other things, a draft set of rules for the operation of the CDM (the CDM modalities and procedures). At the time, the Kyoto Protocol had not entered into force. However, decision 17/CP.7 gave the CDM Executive Board (the Executive Board) the authority to commence provisional operation of the CDM in light of the length of time projects would take to become operational, pending the Kyoto Protocol's entry into force.
On 16 February 2005, Russian ratification took the number of countries and the emissions ratio beyond the required threshold for the Kyoto Protocol to enter into force (not less than 55 Parties to the UNFCCC, accounting for at least 55% of total carbon dioxide emissions (at 1990 levels) for Annex I Parties). Following its entry into force, formal inter-governmental discussions on the Kyoto Protocol would be known as meetings of the Parties (MOPs) and would run in parallel to COPs. During October and November 2005, the eleventh COP ran in conjunction with the first MOP, creating the first combined COP/MOP forum.
It was at the inaugural Conference of the Parties to the UNFCCC serving as the Meeting of the Parties to the Kyoto Protocol (COP/MOP) assembly that the CDM modalities and procedures were formally adopted. However, the CDM modalities and procedures are still subject to further refinement by the Executive Board, under the guidance and authority of the Parties.
The development of the CDM as shown in this section is demonstrated by the diagram below.