Policy monitor. Edited by Maureen Cropper. The clean development mechanism: history, status, and prospects
Résumé
Through the Clean Development Mechanism (CDM), governments or firms in developed countries can participate in the financing of projects that reduce greenhouse gas (GHG) emissions in developing countries in exchange for emission reduction credits that they can use against their targets under the Kyoto Protocol. The CDM has developed very rapidly, and it is second only to the European Union Emissions Trading Scheme among the carbon markets. A typical CDM project today mitigates a gas other than CO2 in Asia, with carbon credits purchased by a European private company. Despite significant limitations, the CDM provides an example of how financing for global public goods can support sustainable development. Looking forward, the CDM is not adapted to support the large-scale mitigation efforts that are required in large countries to meaningfully curb GHG emissions in the future. However, (an improved) CDM could still play a very important role in channeling international carbon finance to small- and medium-sized developing countries.