1997 Kyoto Protocol to the UNFCCC resolved to reduce emissions
of greenhouse gases (such as carbon dioxide and methane) on
a global scale. One strategy within the protocol for achieving
this is the Clean Development Mechanism - or
The CDM allows industrialized countries with emission reduction
commitments to meet part of their commitments by investing in
projects that reduce emissions in developing countries. These
projects need to support sustainable development in the host
countries and must lead to emission reductions that are real,
measurable and long term.
Many developing countries already have experience in projects
relevant to climate change mitigation such as energy efficiency,
cleaner production, fuel switching and forestry. These projects
typically use equity and debt to raise capital and produce financial
returns for the investor.
CDM projects are different because they include another type
of input - carbon investment.
The project generates carbon credits with a monetary value.
Additional financial resources flow to the project to gain carbon
credits. This finance is distinct from the equity investments
made for financial returns - even if they are made by the same
Accords later established the 'rules and modalities' of
the CDM (including its operating procedures, eligibility criteria,
roles and responsibilities of parties and role-players and definitions)
and established the requirement for a 'Designated National Authority'
(and stipulated its role) in a host country.