What is Clean Development Mechanism all about?
The Clean Development Mechanism (“CDM”) is a market based trading mechanism under the Kyoto Protocol for trading Green House Gas (GHG) Emission rights. It has the following crucial elements:
- Subsidy is disbursed to the developing world by the developed world in return for lower emissions of GHGs.
- The subsidy offsets the cost of reducing GHG emissions, thereby encouraging less developed countries to emit less GHG than they otherwise would.
It represents the first attempt to address a global atmospheric commons problem using a global market. Michael Wara of the PESD, Stanford University critically analyses the CDM and I quite agree with the conclusions of the paper which I will discuss below. In brief CDM and the manner in which it is operationalized, shifts the onus of reducing GHGs to the developing world. On the other hand the developing world is using this mechanism as a lucrative opportunity. Yes, the flow of GHGs get reduced but is the mechanism efficient or is it just a complicated mechanism for the developed world to maintain status quo.
The paper makes the following observations:
…. The CDM can be looked at as a subsidy, a market, and a political mechanism. It is a subsidy in that it pays developing countries to pollute less than they otherwise would. It is a market in that its subsidy is delivered through the creation of Certified Emissions Reductions (“CERs”), tradable credits also usable as compliance instruments for developed nations’ Kyoto obligations. It is a political mechanism in that it induces developing world participation in the Kyoto Protocol.
The CDM fails as a market because it has animated accounting tricks that allow participants to manufacture CERs at little or no cost. It fails as a subsidy because the developed world has had to purchase these emissions reductions at an extremely high premium that bears no relation to their cost. The CDM, even as it is supplying CERs to developed world parties to the Kyoto Protocol at prices that are less than they would otherwise have to pay, is an excessive subsidy that represents a massive waste of developed world resources.
Given that CDM has produced remarkable participation on the part of the developing world in the Kyoto Protocol, it has succeeded as a political mechanism for sure!
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March 18th, 2009 at 4:05 pm
I read your entire blog.Its a useful information given by you.Its a global market of carbon trading to solve emission reduction. I think we have to take some natural step like reforestation or forestation .The CDM is supervised by the CDM Executive Board (CDM EB) and is under the guidance of the Conference of the Parties (COP/MOP) of the United Nations Framework Convention on Climate Change (UNFCCC)