CDM Criticisms: Don't Throw the Baby out with the Bathwater

FNI Climate Policy Perspectives 8, February 2013

CDM has delivered greater offset volumes than anticipated, mainly with money from the private sector in host countries (underlying project investment) and investor countries (carbon offset purchasing) and has built considerable institutional capacity.

Criticisms have focused on high transaction costs and lack of scalability; additionality challenges and lack of net mitigation impact; preventing more ambitious targets and changes in emissions paths in developed and developing countries alike; excessive rents and perverse incentives; unbalanced regional distribution; low local sustainable development benefits; corruption and lack of transparency; and lack of technology transfer.

While some of these criticisms are justified, others are outdated. Transaction costs have been drastically reduced. Excessive rents and perverse incentives in the CDM will be substantially reduced post-2012. Unbalanced regional distribution will be reduced by new rules; moreover, this is probably less of a problem than commonly thought.

Some criticisms are erroneously founded. There is no evidence of CDM preventing more ambitious targets in developing countries while it could prevent changes in emissions paths in developed countries. Few CDM projects have serious known problems as regards sustainable development. Corruption and fraud seem limited; and technology transfer has never been a core CDM concern.

Ironically, critics often neglect the elements that need to be improved. To ensure additionality, CDM rules must be tightened to exclude common practice projects and prevent host countries from changing their policies to cater for CDM projects.

CDM's scalability and additionality challenges could be substantially reduced by discounting emission reductions. There could still be some non-additional projects, but the volume of the overall portfolio of projects would be additional.