Clean Development Mechanism or CDM in short, is an extension of Kyoto Protocol mechanism which objective is for encouraging transfer of technology from industrialized countries to developing countries. At first it is only in technology perspective, then it extend to transfer investments as well. It is expected that developed countries would invest projects to reduce gas emissions in developing countries. As a return, they get credits in Certified Emission Reductions —CER credits— which inline with emission restriction target and compliance with Kyoto Protocol standard to limit gas emission.
The main advantages of the Kyoto Protocol sponsored project is the possible reduction of cost for coping with the objectives of the Kyoto Protocol. It targeted developed countries and give support of host countries to reach Kyoto Protocol’s objectives in reaching a sustainable development.
Countries that manage to reduce emissions under Kyoto Protocol can contribute to financing projects in developing countries that are not achieving the reduction target. There are several goals that must be achieved by the project. It must reduce greenhouse gas emissions and maintain the sustainable development in the host country.
Clean Development Mechanism project can be divided in to two main categories. The first is renewable energy projects. Under this plan, the main goal is to promote transition of energy usage from carbon intensive energy sources to less carbon intensive energy fuels. The second category is projects that will promote to reduce energy usage trough introduction several methods — based on research — that will keep energy effective.
Clean Development Mechanism projects must have passed a strict procedure and public issuance process. The project must be supported by the CDM Executive Board that has the responsibility to oversee approved projected in countries that have ratified Kyoto Protocol. To be eligible for CDM projects, first it must get consent from Designated National Authorities. Since its establishment in 2006, the mechanism has filed more than one thousand projects. It is anticipated to produce Certified Emissions Reductions to more than 2.8 billion tonnes of CO2.
For a comparison in calculating the amount of the reduction of carbon dioxide emissions for a project, it is required to compare emissions with those of a baseline scenario. Baseline scenario is based on the situation which has occurred without the project activity.
Baseline scenario for a biomass project might be compareable to coal power plant. Certified emission reductions then will be the deviation between emissions in the baseline — gas-fired power plant— and the project —biomass-based electricity—. The sources and sectors of emissions are based on of Greenhouse Gases emissions listed in Kyoto Protocol. Those emissions include energy, waste, industry waste and agriculture process.
By performing this mechanism, it lets projects in developing countries to get Certified Emissions Reduction credits. One credit is equivalent to one tonne carbon dioxide. The CDM Executive Board then confirmed that the company has reduced carbon dioxide emissions by 400,000 tons each year. This is equivalent to as some Certified Emissions Reduction credits. For example, UK has to reduce its greenhouse gas emissions by 1 million tonnes of carbon dioxide per year. Should UK decides to purchase 400,000 credits from company in the developed countries, this target reduces to 600,000 tonnes per year making the goal easier to achieve.
There are some options for investors — or potential investors— to get a return on Clean Development Mechanism investments. One way is by selling its Certified Emissions Reductions to other government or company that interest to buy in international markets. The other option is using its Certified Emissions Reductions to cancel any emissions of its group operations companies outside CDM host country that are regulated by climate policies. The last possible option is by saving Certified Emissions Reductions credit that it has for any future use.
