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

The report analyzes 43 proposed post-2012 climate regimes, categorizing them into five types: targets with flexibility mechanisms, targets with emissions trading only, policy and sectoral approaches, technology approaches, and other approaches. It argues that while the current project-based CDM is compatible with some regimes, an 'expanded CDM'—incorporating programmatic, policy-based, or sectoral crediting—could vastly increase the volume of greenhouse gas reductions but risks swamping the carbon market if not matched by ambitious developed-country targets. The authors emphasize the 'development dividend'—benefits beyond GHG reductions—and suggest that graduating large emitters (like the BRICSAM nations) from the CDM could improve regional equity for least developed countries (LDCs).

• The report identifies five broad categories of post-2012 climate approaches: targets with flexibility mechanisms, targets with emissions trading only, policy and sectoral approaches, technology approaches, and other approaches.
• An expanded CDM that includes policy-based and programmatic initiatives could generate greenhouse gas reductions at a significantly higher order of magnitude than the current project-by-project CDM, potentially exceeding market demand.
• The potential supply of credits from policy-based CDM and avoided deforestation is so large that it could 'swamp' the market, potentially crashing CER prices unless matched by ambitious reduction targets in developed countries.
• The 'development dividend'—defined as benefits to developing countries beyond climate change, such as economic growth, poverty alleviation, and health improvements—is often lacking in high-volume, low-cost projects like HFC-23 destruction.
• Regional distribution of CDM benefits is highly unequal; as of May 2007, China, Brazil, and India accounted for 74% of CERs in the pipeline, while only nine LDCs had projects representing less than 1% of the total pipeline.
• The graduation of large-emitting developing countries (BRICSAM) from the CDM to target-based commitments could enhance regional equity by opening a greater share of the market to LDCs and Small Island Developing States (SIDS).
• A fund-based mechanism is proposed as a unique alternative that could operate even in a regime without internationally agreed targets, using reverse auctions to purchase emission reduction credits.
• The report notes that the current CDM structure requires a clear differentiation between parties with quantifiable emission targets and those without; if all countries have similar targets, a CDM-like mechanism cannot exist.

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} }