The Clean Development Mechanism (CDM)

EDF suggests two simple but essential criteria for judging any proposal to update the CDM. Most parties agree that a post-Kyoto climate framework must update or replace the Clean Development Mechanism (CDM). Why? The CDM is currently one of the only ways developing countries can participate in global carbon markets, and it has proven inadequate to lower greenhouse gas emissions at the national level.

Economists and policy experts have put forward many proposals for reforming the CDM. There are proposals to streamline the CDM, proposals to phase out the CDM for major emitting countries, and proposals to discount CDM credits or place limits on how many CDM credits can be used. A major debate surrounds proposals for "sectoral CDM" — a broad set of approaches that would cap and reduce emissions by economic sector. Sectoral approaches would — in theory — ensure that companies do not lose their competitive edge by being forced to lower emissions faster than their competitors.

Unfortunately most proposals fail to meet two simple but essential criteria. They do not give major emitting developing countries incentives to reduce overall national emissions, and they do not guarantee that global emissions decline fast enough to avert dangerous climate change.

EDF urges that all proposals to replace the CDM be measured against these two simple, essential criteria. Any successful proposal must:

1. encourage broader and deeper participation of all major emitting nations, and


2. ensure a significant reduction in overall emissions at the global level. Mechanisms that do not meet these criteria cannot avoid the shortcomings of the CDM.

What is the CDM?

The CDM is a provision of the 1997 Kyoto Protocol that awards tradeable carbon credits to developing country projects that capture greenhouse gas emissions, or lower emissions below what they otherwise would have been — often called the "business as usual" (BaU) scenario.

The CDM was an important first step. It helped advance sustainable development, and it helped investors and innovators in industrialized and developing nations gain experience tracking emissions and trading carbon on global markets.

The problem is the CDM stops short of allowing developing countries to participate more fully in global carbon markets. New proposals must bring major emitting developing countries into carbon markets as fuller participants so they can finance investments in low-carbon technologies. Different countries may advance at different speeds, use different milestones, and take into account different levels of development and responsibility for global warming. Nonetheless, a new mechanism is needed that supports, rather than undermines, a shared global system of carbon limits.

EDF supports the following policy positions:

• World leaders urgently need to move beyond the CDM and find new ways to invite developing countries into global agreements as fuller participants in carbon markets


• It is not possible for major-emitting developing nations to lower total emissions through the CDM alone. Global warming cannot be stopped at 2°C without big reductions by major developing nations ? even if emissions from industrialized countries and deforestation are cut to zero.


• To be successful, any post-CDM proposal must meet two simple but essential criteria: 1) it must encourage broader and deeper participation by major emitting nations; and 2) it must ensure reductions in absolute global emissions significant enough to avert dangerous climate change.