Realizing the Development Dividend: Making the CDM Work for Developing Countries

The report evaluates the Clean Development Mechanism's (CDM) ability to provide a "development dividend" to developing countries. It finds that the current project pipeline is dominated by low-cost, end-of-pipe industrial projects (such as HFC23 decomposition) that offer minimal sustainable development benefits and are concentrated in a few larger developing nations. The report identifies high transaction costs and a cumbersome project-by-project approval process as significant barriers to the deployment of small-scale, community-based projects. To address these issues, the authors recommend transitioning toward policy-based and sectoral CDM approaches, reforming the CDM Executive Board into a professional body, and establishing internationally agreed principles for sustainable development.

• The current CDM project pipeline is heavily skewed toward industrial projects with high global warming potential but low sustainable development value, specifically landfill gas and HFCs, which account for nearly 75% of expected Certified Emission Reductions (CERs).
• CDM investment is geographically concentrated in a small number of developing countries; Brazil, India, and Chile alone account for 70% of expected CERs, while only two of the 49 least-developed countries (Bhutan and Bangladesh) had projects in the pipeline as of April 2005.
• There is a significant gap between the demand for CERs and the current supply; while demand is estimated between 217 and 640 Mt CO2e per year by 2010, the current roster of projects projects an average of only 26.3 Mt CO2e per year over the first commitment period.
• High transaction costs, estimated at approximately US$200,000 per project, disproportionately penalize small-scale projects that typically offer higher sustainable development benefits.
• The project-by-project approval model is viewed as too cumbersome to meet global demand; meeting a demand of 217–640 Mt CO2e per year would require the Executive Board to approve between 750 and 2,200 projects, which is deemed an impossible scenario under current arrangements.
• The report recommends shifting from a bottom-up project model to top-down 'policy-based' or 'sectoral' CDM approaches to remove bottlenecks and target sectors with high development dividends, such as transportation and energy efficiency.
• The CDM Executive Board (EB) is criticized for being a rotating body of semi-volunteers; the report recommends transforming it into a professional body with full-time staff and increased resources.
• Uncertainty regarding the climate regime post-2012 is deterring long-term investment, particularly in projects with longer gestation periods like fuel switching, which can take up to seven years.
• The report suggests that the criteria for additionality should be reviewed to downplay financial additionality and that additionality for small-scale projects should be assumed to encourage their development.

APA

Cosbey, A., Parry, J.-E., Browne, J., Babu, Y. D., Bhandari, P., Drexhage, J., & Murphy, D. (2005). Realizing the Development Dividend: Making the CDM Work for Developing Countries. International Institute for Sustainable Development. https://www.iisd.org/system/files/publications/climate_realizing_dividend.pdf

Chicago

Cosbey, Aaron, Jo-Ellen Parry, Jodi Browne, Yuvaraj Dinesh Babu, Preety Bhandari, John Drexhage, and Deborah Murphy. Realizing the Development Dividend: Making the CDM Work for Developing Countries. International Institute for Sustainable Development, 2005. https://www.iisd.org/system/files/publications/climate_realizing_dividend.pdf.

Wikipedia

{{cite report |last1=Cosbey |first1=Aaron |last2=Parry |first2=Jo-Ellen |last3=Browne |first3=Jodi |last4=Babu |first4=Yuvaraj Dinesh |last5=Bhandari |first5=Preety |last6=Drexhage |first6=John |last7=Murphy |first7=Deborah |title=Realizing the Development Dividend: Making the CDM Work for Developing Countries |publisher=International Institute for Sustainable Development |date=May 2005 |url=https://www.iisd.org/system/files/publications/climate_realizing_dividend.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{cosbey2005realizing, author = {Cosbey, Aaron and Parry, Jo-Ellen and Browne, Jodi and Babu, Yuvaraj Dinesh and Bhandari, Preety and Drexhage, John and Murphy, Deborah}, title = {{Realizing the Development Dividend: Making the CDM Work for Developing Countries}}, institution = {International Institute for Sustainable Development}, year = {2005}, month = may, url = {https://www.iisd.org/system/files/publications/climate_realizing_dividend.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }