Clean Development Mechanism

Overview on sustainable development

The major discussion initiating sustainable development is found in the report of the World
Commission on Environment and Development (WCED), a body created by the UN General
Assembly in 1983. This Commission was headed by Gro Brundtland, then prime minister of
Norway and later head of the World Health Organization. The Commission’s 1987 report, often
referred to as the Brundtland Commission Report, defined “sustainable development” as
development that “meets the needs of the present without compromising the ability of future
generations to meet their own needs.”
Sustainable development is an approach that will permit continuing improvements in the quality
of life with a lower intensity of resource use, thereby leaving behind for future generations an
undiminished or even enhanced stock of natural resources and other assets. (Mohan Munasinghe
and Ernst Lutz, 1991)
Sustainable development has three bottom line- Economic, social, environmental.
Short history of sustainable development:
• Term first mentioned in a book related to the 1972 Un Stockholm Conference on the
Human Environment.
• 1980 Report: World Conservation Strategy- Living Resource Conservation for Sustainable
Development by IUCN, WWF, UNEP
• 1983 Norwegian Prime Minister Gro Harlem Brundlandt asked by UN Secretary General
to head a UN commission to consider the ideas developed at a meeting in Stockholm.
• “Humanity has the ability to make development sustainable-to ensure that it meets the
needs of the present without compromising the ability of future generations to meet their
own needs.” (Our Common Future, The World Commission on Environment and
Development, Oxford University Press, 1987.
Strong and Weak Sustainability:
Strong Sustainability: The existing stock of the natural capital must be maintained and enhanced
because the functions it performs cannot be duplicated by manufactured capital.
Weak Sustainability: Manufactured capital of equal value take the place of natural capital.

Nine Ways to Achieve Sustainability

• Leave everything in the pristine state, or return it to its pristine state.
• Develop so as to not overwhelm the carrying capacity of the system.
• Sustainability will take care of itself as economic growth proceeds (Kuznets).
• Polluter and victim can arrive at an efficient solution by themselves (Coase).
• Let the markets take care of it.
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 • Internalize the externalities.
• Let the national economic accounting systems reflect defensive expenditures.
• Reinvest rents for nonrenewable resources (weak and strong sustainability).
• Leave future generations the options or the capacity to be as well off as we are.
Environmental Kuznets curve
The Environmental Kuznets Curve (EKC) is often used to describe the relationship between
economic growth and environmental quality. It refers to the hypothesis of an inverted U-shaped
relationship between economic output per capita and some measures of environmental quality. The
shape of the curve can be explained as follows: As GDP per capita rises, so does environmental
degradation. However, beyond a certain point, increases in GDP per capita lead to reductions in
environmental damage. Specifically:
➢ at low incomes, pollution abatement is undesirable as individuals are better-off
using their limited income to meet their basic consumption needs,
➢ once a certain level of income is achieved, individuals begin considering the trade-
off between environmental quality and consumption, and environmental damage
increases at a lower rate, and
➢ after a certain point, spending on abatement dominates as individuals prefer
improvements in environmental quality over further consumption, and
environmental quality begins to improve alongside economic growth.

Fig: The environmental Kuznets curve

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Global-warming Potential (GWP)
GWP is a relative measure of heat being trapped by GHGs in atmosphere. It compares total heat
trapped by certain mass of gas to total amount of heat trapped by a similar mass of CO2

Kyoto Protocol:
The Kyoto Protocol was signed in 1997, at the 3rd Conference of the Parties (COP 3) to the
Framework Convention on Climate Change in Kyoto, Japan. This treaty significantly bolstered the
Convention by committing developed countries, known as Annex 1 Parties, to legally binding
limits on GHG emissions. The Kyoto Protocol aims to reduce the GHG emissions of Annex 1
countries by at least 5 percent compared to 1990 levels over the period 2008-2012. Six GHGs are
covered under the Protocol.

The Kyoto Protocol is an international agreement linked to the United Nations Framework
Convention on Climate Change. The major feature of the Kyoto Protocol is that it sets binding
targets for 37 industrialized countries and the European community for reducing greenhouse gas
(GHG) emissions. These amount to an average of five per cent against 1990 levels over
the five-year period 2008-2012.
The major distinction between the Protocol and the Convention is that while the Convention
encouraged industrialized countries to stabilize GHG emissions, the Protocol commits them
to do so.

➢ Recognizing that developed countries are principally responsible for the current high levels
of GHG emissions in the atmosphere as a result of more than 150 years of industrial
activity, the Protocol places a heavier burden on developed nations under the principle of
“common but differentiated responsibilities”.

➢ Convention on Climate Change (UNFCCC) was adopted at the third session of the
Conference of the Parties (COP 3) in Kyoto, Japan, on 11 December 1997. In accordance

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 with Article 24, it was open for signature from 16March 1998 to 15March 1999 at United
Nations Headquarters, New York. By that date the Protocol had received 84 signatures.

Pursuant to Article 22, the Protocol is subject to ratification, acceptance, approval or accession by
Parties to the UNFCCC.

The Protocol entered into force on 16 February 2005 in accordance with Article 23, that is the
ninetieth day after the date on which not less than 55 Parties to the UNFCCC, incorporating Parties
included in Annex I which accounted in total for at least 55% of the total carbon dioxide emissions
for 1990 of the Parties included in Annex I, have deposited their instruments of ratification,
acceptance, approval or accession. Currently, there are 192 Parties (191 States and 1 regional
economic integration organization) to the Kyoto Protocol to the UNFCCC. The total percentage
of Annex I Parties emissions is 63.7%.

The Kyoto mechanisms are:

Emissions Trading
The Clean Development Mechanism (CDM)
Joint Implementation (JI)

The Kyoto mechanisms:

Stimulate sustainable development through technology transfer and investment;
Help countries with Kyoto commitments to meet their targets by reducing emissions or
removing carbon from the atmosphere in other countries in a cost-effective way;
Encourage the private sector and developing countries to contribute to emission reduction
efforts;

Parties with commitments under the Kyoto Protocol (Annex B Parties) have accepted targets for
limiting or reducing emissions. These targets are expressed as levels of allowed emissions, or
“assigned amounts,” over the 2008-2012 commitment period. The allowed emissions are divided
into “assigned amount units” (AAUs).
Emissions trading, as set out in Article 17 of the Kyoto Protocol, allows countries that have
emission units to spare -emissions permitted them but not "used" - to sell this excess capacity to
countries that are over their targets.
Thus, a new commodity was created in the form of emission reductions or removals. Since
carbon dioxide is the principal greenhouse gas, people speak simply of trading in carbon. Carbon
is now tracked and traded like any other commodity. This is known as the "carbon market."

The other units which may be transferred under the scheme, each equal to one tone of CO2, may
be in the form of:
A removal unit (RMU) on the basis of land use, land-use change and forestry (LULUCF)
activities such as reforestations
An emission reduction unit (ERU) generated by a joint implementation project
A certified emission reduction (CER) generated from a clean development mechanism project
activity
Transfers and acquisitions of these units are tracked and recorded through the registry systems
under the Kyoto Protocol.

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 The carbon market is a key tool for reducing emissions worldwide. It was worth 30 billion USD
in 2006 and is growing.

Carbon Credit:

International treaties have set quotas on the amount of GHG countries can produce, which in turn
set quotas for businesses. Instruments like carbon credits and carbon offset were introduced in
order to improve the scenario by encouraging firms to be more environment friendly in conducting
their business. One carbon credit allows one tonne of carbon dioxide or a corresponding amount
of other greenhouse gases to be discharged in the air.
Businesses that are over their quotas must buy carbon credits for excess emissions, while those
below can sell their remaining credits. This exchange of credits between businesses has
encouraged carbon trading globally.
These credits can be exchanged between businesses or bought and sold in international markets at
prevailing market price at two exchanges, namely the Chicago Climate Exchange and the
European Climate Exchange. The amount of global emissions can be controlled through the buying
and selling of carbon credits in the carbon trading method.
Carbon trading is used when the company's emissions exceed its quota of carbon credits, forcing
it to purchase credits from other companies which have spare carbon credits. As a result, the
worldwide carbon emissions stay within permissible levels, and the companies come up with
ecologically sustainable ways of conducting business.

Carbon Offset:

Carbon offset is another financial solution to reduce greenhouse gas emission, which works on a
similar strategy. A carbon offset credit is equivalent to reduction of one metric ton of CO2 or
equivalent greenhouse gas in the atmosphere. It immensely aids in promoting renewable and green
energy options like solar energy and wind energy, and in funding projects on nature conservation
and reforestation. Using cleaner and renewable energy sources like wind and tidal energy helps to
achieve this crucial reduction.

Clean Development Mechanism (CDM)

The Clean Development Mechanism (CDM) (KP Article 12) allows a country with an emission-
reduction or emission-limitation commitment under the Kyoto Protocol (Annex B Party) to
implement an emission-reduction project in developing countries. Such projects can earn saleable
certified emission reduction (CER) credits, each equivalent to one tonne of CO2, which can be
counted towards meeting Kyoto targets.
The mechanism is seen by many as a trailblazer. It is the first global, environmental investment
and credit scheme of its kind, providing a standardized emissions offset instrument, CERs.
A CDM project activity might involve, for example, a rural electrification project using solar
panels or the installation of more energy-efficient boilers.
The mechanism stimulates sustainable development and emission reductions, while giving
industrialized countries some flexibility in how they meet their emission reduction or limitation
targets.

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 Operational since the beginning of 2006, the mechanism has already registered more than 1,650
projects and is anticipated to produce CERs amounting to more than 2.9 billion tonnes of CO2
equivalent in the first commitment period of the Kyoto Protocol, 2008–2012.

The CDM’s main objectives are to:

➢ Assist Annex 1 countries in meeting their GHG emission targets under the Kyoto Protocol
➢ Promote sustainable development in non-annex 1 host countries.

Some key characteristics of the CDM:

➢ CDM projects must substantiate that reduction in GHG emissions go beyond business as
usual (BAU) and are in addition to any emission reductions that would have occurred in
the project’s absence (known as ‘additionality’).
➢ Both public and private entities are eligible to participate and participation is voluntary.
➢ CDM projects result in real, measurable, and long-term GHG reductions.
➢ CDM projects must contribute to sustainable development, the determination of which
rests with the host country.
➢ The Executive Board is the supervisory body of the CDM and is responsible for the
administration of CDM rules and modalities.

The CDM project cycle comprises the following steps:

(i) Development of Project Design Document (PDD)
(ii) Approval by Host Country Designated National Authority (DNA)
(iii) Validation by a Designated Operational Entity (DOE)
(iv) Registration with the CDM Executive Board
(v) Project Monitoring
(vi) Verification and Certification by a Designated Operational Entity (DOE)
(vii) Issuance of Certified Emission Reductions (CERs) by the CDM Executive Board

Examples of CDM project types include:

• Energy efficiency
• Renewable energy
• Afforestation/reforestation
• Methane gas mitigation
• Fuel substitution.

The CDM Project Cycle

The CDM project cycle involves a series of discrete steps. In general, project proponents must first
identify a project, complete the necessary documentation, obtain host-country approval, secure
project validation by an independent third party (i.e. an accredited DOE), and register the project
with the EB.

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Following registration, the project proponent must then monitor project activities and obtain
verification of the project’s emission reductions by an independent third party. (Note that CDM
rules specify that project validation and verification may not be performed by the same DOE
(except for small-scale projects). Hence, each non-small-scale project will need to engage two
different DOEs over the course of the project cycle.)

The interval from project inception to registration varies considerably. The total time required is
influenced by: type and complexity of the project; the time and effort needed to prepare project
documentation and secure project validation; whether the project uses an existing baseline
methodology or requires development and approval of a new methodology; and the time required
to complete the EB registration process. A review of the projects registered to date (i. e. August
2006) suggests that, on average, it takes up to 2 years to move from the project identification
stage to project registration.