Market Mechanisms for Sustainable Development in a Post-2012 Climate Regime: Implications for the Development Dividend

This research paper by the International Institute for Sustainable Development examines four proposed regime options for a post-2012 climate change framework and their impact on the "development dividend"—defined by the quality of sustainable development, the quantity of Certified Emission Reductions (CERs), and the regional distribution of investments in developing countries.

• Broadening the scope of the Clean Development Mechanism (CDM) to include land use, land-use change and forestry (LULUCF), carbon capture and storage (CCS), and nuclear activities could significantly increase the supply of low-cost credits, potentially over-supplying the market. For example, research suggests 94 percent of Amazon deforestation could be avoided at less than US$5 per tonne.
• Expanding the CDM to include sectoral crediting and Nationally Appropriate Mitigation Actions (NAMA) could deliver greenhouse gas reductions at a much higher magnitude than the current project-by-project approach, though this risks crashing CER prices without ambitious reduction targets in developed nations.
• Implementing graduation criteria for developing country eligibility—where some non-Annex I parties take on targets—would likely reduce the overall volume of CERs. If China were removed from the market, the number of projects in the CDM pipeline would decrease by 36 percent and CERs by 2012 would drop by 54 percent.
• A fund-based mechanism is identified as the most effective option for ensuring equitable regional distribution and high-quality sustainable development, as it can explicitly direct financial transfers to Least Developed Countries (LDCs) and specific priorities. However, it would be difficult for government funding to match the scale of private sector investment seen in the CDM.
• Current CDM investment is heavily concentrated in a few nations; China, India, and Brazil host over 70 percent of approved projects and are expected to generate three-quarters of all CERs by 2012, while LDCs account for less than 1 percent of projects and CERs.

APA

Murphy, D., Cosbey, A., & Drexhage, J. (n.d.). Market Mechanisms for Sustainable Development in a Post-2012 Climate Regime: Implications for the Development Dividend. International Institute for Sustainable Development. https://www.iisd.org/system/files/publications/implications_dev_dividend.pdf

Chicago

Murphy, Deborah, Aaron Cosbey, and John Drexhage. Market Mechanisms for Sustainable Development in a Post-2012 Climate Regime: Implications for the Development Dividend. International Institute for Sustainable Development, n.d. https://www.iisd.org/system/files/publications/implications_dev_dividend.pdf.

Wikipedia

{{cite report |last1=Murphy |first1=Deborah |last2=Cosbey |first2=Aaron |last3=Drexhage |first3=John |title=Market Mechanisms for Sustainable Development in a Post-2012 Climate Regime: Implications for the Development Dividend |publisher=International Institute for Sustainable Development |url=https://www.iisd.org/system/files/publications/implications_dev_dividend.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{murphyndmarket, author = {Murphy, Deborah and Cosbey, Aaron and Drexhage, John}, title = {{Market Mechanisms for Sustainable Development in a Post-2012 Climate Regime: Implications for the Development Dividend}}, institution = {International Institute for Sustainable Development}, url = {https://www.iisd.org/system/files/publications/implications_dev_dividend.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }