Under the clean development mechanism:
(a) Parties not included in Annex I will benefit from project activities resulting in certified emission reductions; and
CDM projects are hosted by non-Annex I Parties, which allows these countries (which do not have Kyoto targets) to participate in international emissions trading. The CDM benefits the host Party by:
- contributing to sustainable development, as defined by the host Party;
- facilitating the transfer of technology; and
- facilitating capacity-building activities by Annex I Parties.
It is a requirement for validation of a project activity that the project contributes to sustainable development in the host Party. However, it is the prerogative of the host Party to determine whether or not a project does contribute to sustainable development.
The designated operational entity (DOE) must receive from the project participants a host Party letter of approval confirming that the project contributes to sustainable development, and submit this letter of approval to the Executive Board together with the request for registration.
The CDM also facilitates the transfer of technology from Annex I Parties to non-Annex I host Parties. The transfer of environmentally safe and sound technology and know-how is one of the core objectives of the CDM. Therefore, project participants are required to describe in the project design document (PDD) how technology will be transferred.
The Conference of the Parties (COP) also requested that Annex I Parties implement measures to assist non-Annex I Parties, particularly the least developed and small island developing states among them, to build their capacity to participate in the CDM.
At its first meeting, the the Conference of the Parties serving as the meeting of the Parties (COP/MOP) requested that work be undertaken to investigate systematic or systemic barriers to the equitable regional distribution of CDM activities. This work lead ultimately to the development of the Nairobi Framework.
(b) Parties included in Annex I may use the certified emission reductions accruing from such project activities to contribute to compliance with part of their quantified emission limitation and reduction commitments under Article 3, as determined by the Conference of the Parties serving as the meeting of the Parties to this Protocol.
Annex I Parties may use CERs generated by registered CDM project activities to meet part of their Kyoto targets.
However, the Conference of the Parties has decided that use of the Kyoto Protocol's flexibility mechanisms, including the CDM, must be "supplemental" to domestic action to reduce emissions, and that domestic action by Parties must therefore constitute a "significant element" of actions by Annex I Parties to reduce emissions.
Articles 5, 7 and 8 of the Kyoto Protocol require Parties to include information in their national communications on how use of the flexible mechanisms has been "supplemental" to domestic action.
If a Party has excess CERs at the end of the commitment period which have not been retired for compliance, it may carry a quantity of CERs over to the next commitment period equal to no more than 2.5% of its total assigned amount.