What is the Clean Development Mechanism?

The Clean Development Mechanism (CDM) is an arrangement under the Kyoto Protocol, which enables industrialised countries that have committed to reduce their greenhouse gases (called Annex 1 countries) to earn emission credits through investment in sustainable development projects to reduce emissions in developing countries where costs are lower as an alternative to more expensive emission reductions in their own countries.

Till December 2006, 169 countries and other government entities had ratified the Kyoto Protocol (representing over 61.6 per cent of emissions from Annex I countries). Exceptions include the US and Australia, while India and China, which have ratified the Kyoto Protocol, are not required to reduce carbon emissions under the present agreement.

The CDM is expected to generate investment in developing countries, especially from the private sector, and promote the transfer of environment-friendly technologies.

The United Nations Framework Convention on Climate Change (UNFCCC) that was adopted in 1992 as the basis for a global response to the problem of greenhouse emissions, was aimed at managing greenhouse gas concentrations in the atmosphere at a level that would prevent further deterioration of the climate system.

It was complemented by the Kyoto Protocol in 1997, which has 175 signatory nations of whom 36 Annex 1 industrialised countries and the European Community, who have committed to reduce their emissions by an average of 5 per cent of the 1990 levels by 2012. To do so, the Kyoto Protocol also allows them to meet their emission reduction commitments abroad through so-called "market-based mechanisms".

One of the Kyoto Protocol''s market-based mechanisms is the clean development mechanism. Since the beginning of 2006, the estimated potential of emission reductions to be delivered by the CDM pipeline has grown four-fold to more than 2.2 billion tonnes of CO2 equivalent - approximately the combined emissions of Australia, Germany and the United Kingdom.

The UNFCCC and its Kyoto Protocol are also designed to assist countries in adapting to the inevitable effects of climate change. They facilitate the development of techniques that can help increase resilience to climate change impacts - for example, the development of salt-resistant crops - and to exchange best practices with regard to adaptation.