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

This report by the International Institute for Sustainable Development (IISD) evaluates the Clean Development Mechanism (CDM) of the Kyoto Protocol, focusing on its ability to provide a "development dividend"—socio-economic and environmental benefits for developing countries beyond greenhouse gas reductions. The analysis finds that the emerging CDM market is skewed toward a few large developing countries and dominated by low-cost industrial projects (such as HFC23 decomposition) that offer minimal sustainable development benefits. The report recommends reforming the CDM Executive Board, shifting from project-by-project to sectoral or policy-based approaches, and increasing support for small-scale projects to ensure more equitable and impactful development outcomes.

• The CDM is currently dominated by industrial projects that provide high volumes of Certified Emission Reductions (CERs) but low sustainable development benefits. Specifically, landfill gas and HFCs account for almost three quarters of the CERs in the project pipeline, with two HFC23 decomposition projects alone representing 30 per cent of expected CERs.
• There is a significant geographic imbalance in CDM investment. Brazil, India, and Chile account for 70 per cent of expected CERs. Of the 49 least-developed countries defined by the UNFCCC, only Bhutan and Bangladesh had projects in the pipeline as of April 2005, with one project each.
• The current volume of CDM projects is insufficient to meet projected market demand. As of April 6, 2005, the roster of 92 projects aimed to abate an average of 26.3 Mt CO2e per year by 2012, while estimated demand for CERs by 2010 ranges from 217 to 640 Mt CO2e per year.
• High transaction costs act as a barrier to investment, particularly for small-scale projects with high sustainable development potential. Some estimates suggest the average CDM project adds approximately USD 200,000 in costs, making projects producing less than 0.5 Mt CO2e per year potentially unviable.
• The project-by-project approval process managed by the Executive Board (EB) is viewed as a bottleneck. To meet annual global demand for CERs, the EB would need to approve between 750 and 2,200 projects in the first commitment period, a volume described as an "impossible scenario under the current arrangements."
• The report recommends transitioning the CDM from a bottom-up, project-by-project model to top-down "policy-based" or "sectoral" approaches. This would allow for a focus on sectors with high development dividends, such as transportation and energy efficiency, and remove current bottlenecks.
• To improve the delivery of the development dividend, the report suggests that additionality for small-scale projects should be assumed, and the EB should be transformed into a professional body with full-time staff and increased resources.
• Uncertainty regarding the climate regime post-2012 is deterring long-term investment. The report argues that Parties must provide assurance that emissions reductions post-2012 will have value to prevent a disappearance of new CDM activity.
• The report suggests that Official Development Assistance (ODA) could be used to support the development benefits incremental to environmental investments or to help proponents prepare Project Design Documents (PDDs) and defray transaction costs.
• Defining sustainable development remains a challenge because host countries have the prerogative to determine it, leading to criteria that investors find either too restrictive or too vague. The report recommends developing international principles and guidelines to guide national efforts.

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} }