The Clean Development Mechanism in the future Climate Change Regime

The report analyzes the Clean Development Mechanism's (CDM) successes and failures, noting a heavy concentration of projects in China, India, and Brazil, while Africa remains largely sidelined. It argues that current project-based modalities and stringent additionality rules create high transaction costs and barriers for Least Developed Countries (LDCs). The authors propose shifting toward programmatic CDM to support small-scale projects and sectoral CDM to address heavy industry, specifically analyzing the Chinese iron and steel sector. Key recommendations include retiring CERs to ensure global emission reductions and reforming additionality testing to be more pragmatic and inclusive.

• The CDM has seen significant numerical success with nearly 5,000 projects and an estimated 2.5 billion Certified Emission Reductions (CERs) to accrue by the end of 2012, but project attrition is high and regulatory delays are substantial.
• CDM project distribution is highly uneven, with China, India, and Brazil hosting the bulk of projects, while Africa is severely under-represented, accounting for only 2.1% of registered projects as of February 2009.
• Barriers to CDM uptake in Africa and LDCs include a lack of domestic capital, limited technical capacity for baseline elaboration, and an absence of clear government policy signals, making carbon finance alone insufficient to bridge the investment gap.
• Indian project developers view stringent additionality rules and the cumbersome approval process as major obstacles, noting that the 16% Internal Rate of Return (IRR) benchmark is often unjustified given varying risk profiles.
• Analysis suggests that neither the discounting of CERs nor preferential sales conditions will significantly increase the CDM market share for Africa and LDCs; instead, a dedicated financing vehicle for LDCs is needed.
• Programmatic CDM (Programmes of Activities) is identified as a promising tool for small-scale, dispersed projects in Africa, but its implementation is hindered by restrictions to a single baseline methodology and high validator liability.
• In the Chinese iron and steel sector, technology-based sectoral CDM is considered the most feasible variant due to its transparency and smoother linkage with existing systems, whereas absolute-target and policy-based approaches face severe data and implementation challenges.
• The report argues that additionality testing should be introduced in industrialized countries to prevent carbon leakage caused by mitigation at negative costs, challenging the conventional view that it is unnecessary for capped countries.
• To ensure the CDM contributes to global emission reductions rather than just offsetting, the authors propose a model where industrialized countries retire a certain percentage of acquired CERs.
• Capacity building subsidies in Africa and LDCs have had limited success; despite approximately 43 million Euros spent, many countries with project-focused support have no registered projects, resulting in an implicit subsidy of nearly 1 million Euros per registered project.

APA

Michaelowa, A., Mller, B., Castro, P., Choudhury, R. R., Dietrich, K., Ghosh, P., Maosheng, D., Mukhopadhyay, S., Okubo, Y., Pandey, N., & Yamba, F. (2009). The Clean Development Mechanism in the future Climate Change Regime. Climate Strategies. https://climatestrategies.org/wp-content/uploads/2014/11/cdm-synthesis-report.pdf

Chicago

Michaelowa, Axel, Benito Mller, Paula Castro, Rita Roy Choudhury, Kerstin Dietrich, Prodipto Ghosh, Duan Maosheng, et al. The Clean Development Mechanism in the future Climate Change Regime. Climate Strategies, 2009. https://climatestrategies.org/wp-content/uploads/2014/11/cdm-synthesis-report.pdf.

Wikipedia

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BibTeX

@techreport{michaelowa2009clean, author = {Michaelowa, Axel and Mller, Benito and Castro, Paula and Choudhury, Rita Roy and Dietrich, Kerstin and Ghosh, Prodipto and Maosheng, Duan and Mukhopadhyay, Suchismita and Okubo, Yuri and Pandey, Nimisha and Yamba, Francis}, title = {{The Clean Development Mechanism in the future Climate Change Regime}}, institution = {Climate Strategies}, year = {2009}, month = may, url = {https://climatestrategies.org/wp-content/uploads/2014/11/cdm-synthesis-report.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }