Measuring the Clean Development Mechanism's Performance and Potential (WP #56)

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Program on Energy and Sustainable Development Working Paper #56

July 2006

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Global warming is one of the most difficult and important challenges facing the international community. To date, the most substantial effort to address this problem is the Kyoto Protocol. Although not adopted by the United States or Australia, this international agreement was adopted and ratified by every other large developed country and entered into force on February 16th, 2005. The Protocol is likely the largest ever international effort to combat a global environmental commons problem.

The Clean Development Mechanism ("CDM") is a market based trading mechanism

created by the Kyoto Protocol that functions by delivering a subsidy to the developing world in return for lower emissions of greenhouse gases. The subsidy offsets the cost of reducing GHG emissions, thereby encouraging less developed countries to emit less GHG than they otherwise would. As such, it represents the first attempt to address a global atmospheric commons problem using a global market. During the past 18 months, the CDM took on roughly the shape that it will likely have during the first commitment period of the Kyoto Protocol.

The goal of this paper will be to describe in some detail what that broad outline looks like and also what it can teach us about the design of future treaty architectures aimed at the control of GHG emissions and global warming.

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