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Review of Environmental Economics and Policy 2007 1(1):134-151; doi:10.1093/reep/rem004
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Copyright © The Author 2007. Published by Oxford University Press on behalf of the Association of Environmental and Resource Economists.

Policy Monitor

Edited by Maureen Cropper

The Clean Development Mechanism: History, Status, and Prospects

Franck Lecocq* and Philippe Ambrosi**

* Economist, Laboratoire d’Économie Forestière, UMR INRA–ENGREF, 14, rue Girardet, CS 14216, F-54042 Nancy cedex, France, Tel: +33 3 83 39 68 96, Fax: +33 3 83 37 06 45
** The World Bank, 1818 H St NW Washington DC 20433, USA. The findings and opinions expressed in this article are the sole responsibility of the authors. They do not necessarily reflect the views of the World Bank, its executive directors, or the countries they represent

lecocq{at}nancy-engref.inra.fr

Through the Clean Development Mechanism (CDM), governments or firms in developed countries can participate in the financing of projects that reduce greenhouse gas (GHG) emissions in developing countries in exchange for emission reduction credits that they can use against their targets under the Kyoto Protocol. The CDM has developed very rapidly, and it is second only to the European Union Emissions Trading Scheme among the carbon markets. A typical CDM project today mitigates a gas other than CO2 in Asia, with carbon credits purchased by a European private company. Despite significant limitations, the CDM provides an example of how financing for global public goods can support sustainable development. Looking forward, the CDM is not adapted to support the large-scale mitigation efforts that are required in large countries to meaningfully curb GHG emissions in the future. However, (an improved) CDM could still play a very important role in channeling international carbon finance to small- and medium-sized developing countries.

The authors thank Karan Capoor, Maureen Cropper, Denny Ellerman, Christophe de Gouvello and Jean-Charles Hourcade for their useful comments on earlier drafts of this article. Remaining errors are only the authors'.


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