Review: What is the status of Clean Development Mechanism (CDM) projects?
Sai Krishna Muthyanolla
April 29, 2022
Clean Development Mechanism (CDM) is defined under Article 12 of the Kyoto protocol, where countries with carbon emission reduction targets can set up emission reduction projects in developing countries. This provides them with saleable Certified Emission Reduction (CER) credits. Here is a status check of the CDM-related projects.
The paradoxes of the industrial age are bewildering. The more economically prosperous we become, the more carbon we emit into the atmosphere. The lesser the environmental hindrances are, the higher the ease of doing business. Rising emissions are considered a proxy for economic growth and development, with emissions quadrupling in the same period during which the world’s GDP grew by six times. In 1950, the world emitted 6 billion tonnes of CO, which rose to 22 billion tonnes during the 1990s, and currently, the emissions stand at 34 billion tonnes per annum. The consequences of such higher emissions are evident, with the world witnessing the surge of weather and climate change-related disasters.
To prevent such rapid growth in Greenhouse gas (GHG) emissions, the United Nations Framework Convention on Climate Change (UNFCCC) was adopted in 1992 and came into force in 1994. The objective of this convention was to stabilize GHG emissions. Under this, in 1997, Kyoto Protocol was agreed upon (came into force in 2005), under which the industrialized nations pledged to cut down their emissions by 5% from the 1990 levels during the first commitment period (2008-2012). The reduction target for the second commitment period (2013-2020) was 18%. These targets are binding for industrialized and economies in transition countries (EIT). These EIT parties include Russian Federation, Baltic states, and several eastern and central European countries.
These emission reductions could be achieved by implementing one of the three market-based mechanisms- Joint Implementation, Clean Development Mechanism (CDM) and International Emission Trading. The CDM is defined under Article 12 of this protocol, where countries with reduction targets can set up emission reduction projects in developing countries. This provides them with saleable Certified Emission Reduction (CER) credits. These CERs can be counted towards their target reductions, and each CER represents one tonne of CO. This mechanism is the first of its kind globally that provides a standard emission offset instrument.
In this context, we look at the progress of the CDM and the trends in the CER credits in today’s story. The data is entirely sourced from the Clean Development Mechanism website of the UNFCCC.
Asia & Pacific regions dominate in projects registered under CDM
The scope of the CDM was to establish emission reduction projects in developing countries. Accordingly, by March 2022, a total of 7846 projects are registered across the world. Out of this, Asia & Pacific countries bagged more than 83% of the projects, followed by Latin America and Caribbean countries with 13%. Despite being an under-developed continent, Africa could only get 3% of the total registered projects.
Only a handful of countries bagged the majority of projects
The regional breakup of CDM projects highlights the regional disparity in the distribution of projects. In addition to these existing regional disparities, there is a local variation within the regions too. Only two countries, China and India, account for nearly 70% of all the registered projects. The list of top 10 countries with more projects, consists of only 2 countries (Brazil & Mexico) from Latin America, and only 1 country (Chile) from Africa. The rest of these countries are from Asia, particularly Southeast Asia. A total of around 98 countries that are parties to the Kyoto Protocol (KP) and have a designated National authority (DNA), have less than 10 projects.
Large Scale projects are mostly preferred
A country has the independence and the authority to choose a country and the size and the type of the project at its own will. Accordingly, the majority of the projects preferred are large-scale. The small-scale projects make up 40% of the total projects.
Issuance is defined as the instruction that the CDM Executive board gives to the CDM registry administrator to issue a specific number of CERs for an applicable project. From 2006, a total of 11688 issuances were issued, out of which large-scale projects gained 8229, while the small-scale projects got 3459 issuances. Among the countries, China and India stand out as the top 2 highest receivers of issuances, with 4883 and 2588 issuances respectively.
More preference for energy and waste sector project activities
The energy industry is one of the major contributors to overall emissions. As a result, countries have been making efforts to make this industry as sustainable and less-polluting as possible. This is evident even in the project activities undertaken in the CDM. An overwhelming percentage of the project activities belong to the energy sector and the waste handling and disposal category. It is important to note that a project activity can have one or more sectoral scopes.
China gets half of the total number of CERs issued
As mentioned earlier, one CER is equivalent to one tonne of CO emissions. It is important to understand that a greater number of projects does not necessarily translate into a greater number of CERs. This is because the CERs are calculated on the additional reductions or sequestrations that the project provides. A total of 2169 Million CERs are issued till 31 March 2022, out of which only China accrued more than 50%. It is followed by India, Korea, and Brazil with 12.7%, 8.6% and 8% respectively. The rest of the countries have less than 2% CERs issued by them.
Declining Indian share in the total CERs issued
India had performed extremely well immediately after the operationalization of the Kyoto Protocol. In 2005 and 2006, India managed to get hold of nearly 50% of the total CERs. Since then, the performance had declined till the end of the first commitment period in 2012. During the second commitment period from 2013-2020, the performance had been sluggish. Only in 2015, India’s share accounted for around 70% of the total share, while it reached a maximum of 20% during the rest of the period.
State-wise approved projects and CERs generated:
The state-wise distribution of the approved projects is not uniform across India. While the industrialized states garnered a greater number of projects, the less-industrialised states remained on the backfoot. Since the CDM mechanism itself is under a severe crisis, only a few projects that had earlier registrations are functioning. The state-wise list of approved projects and the CERs up to 2020 is as below.
“CDM fatigue” looming around
In the aftermath of the Kyoto Protocol, CDM was highly successful as a flexible market mechanism. This was despite the complex registration processes involved. Owing to system changes around the world, the CDM is facing severe crises since its inception. The reasons often quoted are the demand-supply mismatches in the market, the unwillingness of governments to engage in CDM, and the financial crisis of 2008 leading to more stringent CER import restrictions in the European Union Emissions Trading Scheme (EU-ETS), non-subscription to the second commitment period and so on. All these factors led to the subdued demand for the CERs. In addition to this, serious lapses were observed in the planning stages. It was believed that CDM would bring sustainable investment to the developing countries in the form of new projects. However, this could not translate into action as the companies were willing to buy CERs from the companies fully organized by the host countries only.
The Paris agreement in 2015 also called for the establishment of a ‘sustainable Development Mechanism (SDM)’, often understood as the heir of the CDM. Though there are similarities in SDM and CDM, the SDM calls for emission mitigation from all countries, unlike the CDM which called for reduction from developed and EIT countries.  This was one of the major points of contention during the Paris agreement rulebook negotiations. The COP 26 negotiations allowed for the carry-over of the old CERs that were generated since the commencement of the Kyoto Protocol. Else, India would have lost credits worth thousands of crores.
It is high time that India adopts new strategies to deal with the carbon emissions market. Moving away from the Kyoto Protocol led to the increase in demand for a voluntary carbon market (VCM), and its demand is likely to increase in the future. Understanding the future of VCM and possible measures to gain from that market should be a priority for India.
Featured Image:  Clean Development Mechanism (CDM) projects