Clean Development Mechanism
Out of the three mechanisms under the Kyoto Mechanisms, the Clean Development Mechanism is most popular. It is defined by the Article 12 of the Kyoto Protocol.
There are two broad objectives of the CDM as follows:
- To help the Non-Annex parties in achieving sustainable development and in contributing to the ultimate objective of the UNFCCC, i.e. to prevent the climate change.
- To help the Annex parties to achieve compliance with their quantified emission limitation and reduction commitments.
The benefits of the CDM are shown in the following graphics:
The Process is shown in the following simple graphics:
The above graphics presents the classical structure of the CDM which uses project-by-project process for registering and verifying projects. This Clean Development Mechanism process not only takes a long time but also has high transaction costs as a result of which it has not been very attractive for energy efficiency projects, which are usually small in terms of investments. There is also a high risk of non registration associated with it.
- The countries which are less developed or least developed and the small island states where average project sizes and the scale of national markets tend to be smaller, the relative transaction costs are higher.
To address this problem, the CDM Executive Board launched the Programme of Activities (PoA) modality.
Programme of Activities (PoA)
Under this modality, a PoA Coordinating/Managing Entity (CME), which can be a government agency, NGO or business, develops a PoA which defines broad parameters for project activities. These activities are called CDM Programme Activities or CPAs. Whereas stand-alone CDM projects must be approved individually by the CDM Executive Board, a PoA needs to be registered only once by the CDM Executive Board. After that, it can include an unlimited and unspecified number of individual CPAs without recourse to the CDM Executive Board. It is expected that the PoA will reduce the transaction cost as the umbrella project registration will allow smaller projects to be included without going through the entire process of due diligence. This would enable the private investors to get CDM revenues in an expeditious manner. The registration will pave the way for an accelerated implementation of the scheme.
In India, one such example of PoA is Bachat Lamp Yojna.