Clean Development Mechanism (CDM)
The Clean Development Mechanism (CDM), one of the three flexibility mechanisms under the Kyoto Protocol, is a project based mechanism which provides for Annex I Parties (developed nations) to the Kyoto Protocol to implement project activities that reduce emissions in non-Annex I (developing nations) countries, in return for certified emission reductions (CERs).
One CER represents one tonne of carbon dioxide equivalent (tCO2-e) of greenhouse gas.
The major non-Annexe 1 countries undertaking CDM projects are China, India and Brazil with project technologies of renewable energy (wind, hydro, biomass), energy efficiency, fuel switching and LULUCF providing the bulk of the emission reductions to date.
Each CDM project technology must adhere to a particular “methodology” which is approved by the CDM Executive Board, the entity which governs the CDM process. Once a methodology is approved for a particular project the project proceeds through a series of registration steps which ultimately leads to the issuance of the CERs.
CDM project developers typically sell their CERs through forward contracts with pricing structures varying from fixed to floating or indexed pricing. CDM projects are able to generate and issue CERs prior to the start of the Kyoto Protocol in 2008 and trade them in the open market. Demand for CERs has increased over the years as the linking directive to the EU ETS allows a percentage of the EU compliance liability to be met by purchasing CERs.
Buyers and sellers of CERs please
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