The Clean Development Mechanism (CDM) is one of the flexibility mechanisms defined in the Kyoto Protocol (IPCC, 2007) that provides for emissions reduction projects which generate Certified Emission Reduction units which may be traded in emissions trading schemes.
Defined in Article 12 of the Kyoto Protocol, the CDM is intended to meet two objectives: (1) to assist parties not included in Annex I in achieving sustainable development and in contributing to the ultimate objective of the convention; and (2) to assist parties included in Annex I in achieving compliance with their quantified emission limitation and reduction commitments. Certified Emission Reduction Units from CDM projects undertaken in non-Annex I countries that limit or reduce greenhouse gas emissions, when certified by operational entities designated by Conference of the Parties/Meeting of the Parties, can be accrued to the investor (government or industry) from parties in Annex B. A share of the proceeds from the certified project activities is used to cover administrative expenses as well as to assist developing country parties that are particularly vulnerable to the adverse effects of climate change to meet the costs of adaptation. (IPCC)