A Critical Assessment of the Clean Development Mechanism
Chapter 4: Discounting emission credits and competitiveness of different CDM host countries
Through the CDM, GHG emission reductions from projects in developing countries can be acquired by industrialized countries to comply with their Kyoto Protocol emission reduction targets. Each tonne of CO2-equivalent emission reductions achieved by the CDM generates one emission credit, which is then used by industrialized countries (or companies in them) to offset their own emissions. Thus, each tonne reduced by a CDM project allows increasing emissions in industrialized countries by one tonne. Theoretically, this is not a problem as long as the reduction from the CDM project is real and as long as incentives for introduction of emission reduction policies in developing countries are not distorted. The key criterion for ensuring that emission reductions from CDM projects are real is ëadditionalityí. Additionality means that a CDM project has to be outside the ëbusiness-as-usualí development scenario for its region or country. That is, there are financial, economic, technical or other barriers for its implementation, which only the CDM incentive manages to overcome. This is a necessary condition for CDM projects to really contribute to reducing global GHG emissions: if a CDM project is not additional, using its emission credits to offset emissions in industrialized countries will lead to an actual increase in emissions. There is substantial criticism that a significant number of CDM projects do not have a very credible additionality argumentation (see, for example, Michaelowa and Purohit 2007; Schneider 2007; Castro and Michaelowa 2008).
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