Market Mechanisms for Sustainable Development: How Do They Fit in the Various Post-2012 Climate Efforts?

This 2007 IISD report analyzes the compatibility of the Clean Development Mechanism (CDM) and other market mechanisms for sustainable development (MMSD) with various proposed post-2012 climate regimes. It identifies that while the current project-based CDM works in regimes with differentiated targets, it would be incompatible with a system where all countries have binding targets. In such cases, the report suggests a shift toward Joint Implementation (JI)-style mechanisms or 'expanded CDM' models that include sectoral and policy-based crediting. The report emphasizes the need to balance the developed world's demand for low-cost, additional credits with the developing world's need for sustainable development dividends and equitable access to investment.

• The Clean Development Mechanism (CDM) is the only current tool allowing non-Annex I (developing) countries to participate in the carbon market, with the dual goals of providing low-cost mitigation for developed countries and sustainable development for host nations.
• Proposed post-2012 regimes that maintain a distinction between countries with emission targets and those without are compatible with the current project-by-project CDM model. However, if all countries are assigned targets, the CDM as currently configured cannot operate.
• In regimes where all countries have targets, emissions trading would likely shift toward models similar to International Emissions Trading (IET) or Joint Implementation (JI). This would move the burden of proving 'additionality' from an international body to the national level, potentially simplifying administration but risking inefficient duplication.
• An 'expanded CDM' could move beyond individual projects to include policy-based or sectoral approaches. Policy CDM would award credits to countries adopting standards (e.g., fuel efficiency) that reduce emissions, though this faces significant challenges in proving that such policies were 'additional' and not driven by non-climate goals like air quality.
• Sectoral CDM approaches would allow for credits based on beating a baseline target for a specific industry (such as energy), which could better influence major capital investments compared to the current project-by-project approach.
• Developing countries prioritize an MMSD that safeguards their sovereign right to define sustainable development and ensures equity of access, particularly for Least Developed Countries (LDCs).
• Developed countries focus on the environmental integrity of credits, emphasizing robust 'additionality' processes to ensure that emission reductions in developing countries are real and would not have occurred otherwise.

APA

Cosbey, A., Murphy, D., & Drexhage, J. (2007). Market Mechanisms for Sustainable Development: How Do They Fit in the Various Post-2012 Climate Efforts? International Institute for Sustainable Development. https://www.iisd.org/system/files/publications/market_mechanisms.pdf

Chicago

Cosbey, Aaron, Deborah Murphy, and John Drexhage. Market Mechanisms for Sustainable Development: How Do They Fit in the Various Post-2012 Climate Efforts? International Institute for Sustainable Development, 2007. https://www.iisd.org/system/files/publications/market_mechanisms.pdf.

Wikipedia

{{cite report |last1=Cosbey |first1=Aaron |last2=Murphy |first2=Deborah |last3=Drexhage |first3=John |title=Market Mechanisms for Sustainable Development: How Do They Fit in the Various Post-2012 Climate Efforts? |publisher=International Institute for Sustainable Development |date=July 2007 |url=https://www.iisd.org/system/files/publications/market_mechanisms.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{cosbey2007market, author = {Cosbey, Aaron and Murphy, Deborah and Drexhage, John}, title = {{Market Mechanisms for Sustainable Development: How Do They Fit in the Various Post-2012 Climate Efforts?}}, institution = {International Institute for Sustainable Development}, year = {2007}, month = jul, url = {https://www.iisd.org/system/files/publications/market_mechanisms.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }