research paper on clean development mechanism

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Research Article

Emission reduction targets and outcomes of the Clean Development Mechanism (2005–2020)

Roles Conceptualization, Data curation, Formal analysis, Funding acquisition, Investigation, Methodology, Validation, Visualization, Writing – original draft, Writing – review & editing

* E-mail: [email protected]

Affiliation New Zealand Climate Change Research Institute, School of Geography, Environment and Earth Sciences, Victoria University of Wellington, Wellington, New Zealand

Roles Data curation, Investigation

Affiliations Guangdong Finance Investment Holdings Co., Ltd., Guangzhou, China, The HKU Shenzhen Institute of Research and Innovation, Shenzhen, China

• Alex Y. Lo, 

• Published: August 3, 2022
• https://doi.org/10.1371/journal.pclm.0000046
• Peer Review
• Reader Comments

The Clean Development Mechanism (CDM) allows developing countries to earn carbon credit units by reducing greenhouse gas emissions. Here we assess the emission reduction outcomes of the CDM between 2005 and 2020. The analysis covers 3,311 CDM projects hosted by 79 countries and over 10,000 Monitoring Reports. We identify which host countries and project types departed from original forecasts more. Overall, the total amount of actual emission reductions was 16% below the targets envisaged by project proponents. Emission reduction projects consistently under-performed over the year, but performance varied between and within regions. Industrial HFCs and N 2 O projects exceeded their targets, whereas landfill gas and methane avoidance projects under-performed by larger margins. Economic gains were unevenly distributed. Estimated revenues relative to GDP were higher for larger emerging economies, and disproportionately smaller for the deprived members of the Global South. Four host countries (China, India, South Korea and Brazil) not only dominated the market, but also gained an advantage from the higher carbon prices before 2012. Least Developed Countries had their carbon credits issued in more recent years when prices were much lower. The results show an imbalance in economic outcomes and raise questions about the effectiveness and equity of this Kyoto mechanism. Weak targets under Paris Agreement could intensify these challenges.

Citation: Lo AY, Cong R (2022) Emission reduction targets and outcomes of the Clean Development Mechanism (2005–2020). PLOS Clim 1(8): e0000046. https://doi.org/10.1371/journal.pclm.0000046

Editor: Malcolm Fairbrother, Umeå University, SWEDEN

Received: February 17, 2022; Accepted: July 5, 2022; Published: August 3, 2022

Copyright: © 2022 Lo, Cong. This is an open access article distributed under the terms of the Creative Commons Attribution License , which permits unrestricted use, distribution, and reproduction in any medium, provided the original author and source are credited.

Data Availability: The dataset is available from Mendeley Data: https://data.mendeley.com/datasets/x294w2gypt/draft?a=c8ca50c0-9bdb-48f3-9845-bf4f60a7b177 .

Funding: AL received funding for this research from the National Natural Science Foundation of China (Grant No.: 41601605). RC receives salary from Guangdong Finance Investment Holdings Co., Ltd. The funders had no role in study design, data collection and analysis, decision to publish, or preparation of the manuscript.

Competing interests: I have read the journal’s policy and the authors of this manuscript have the following competing interests: • AL is a member of the PLOS Climate editorial board. • RC is affiliated to Guangdong Finance Investment Holdings Co., Ltd. The authors declare that they have no other known competing financial interests or personal relationships that could have appeared to influence the work reported in this paper.

1. Introduction

Article 6 of the Paris Agreement provides a basis for establishing new mechanisms for mitigating greenhouse gas (GHG) emissions after 2020. The new mechanisms are likely to involve the use of internationally transferred mitigation outcomes to achieve nationally determined contributions (NDCs). These mechanisms are expected to replace the Clean Development Mechanism (CDM), a multi-billion euro carbon finance mechanism established under the Kyoto Protocol [ 1 ].

The CDM enables Annex I Parties (industrialized countries) to produce and acquire carbon offset units through investments in GHG mitigation projects in non-Annex I Parties, predominantly in the Global South. These offset units, known as Certified Emission Reductions (CER), represent a reduction, avoidance or sequestration of one metric ton of CO 2 that would otherwise be emitted into the atmosphere. Annex I Parties can use CERs to meet their emission reduction targets under the Kyoto Protocol [ 2 , 3 ]. The CDM issued the first CERs in October 2005. Since then, it has mobilized more than US$162 billion of financing to non-Annex I Parties. As of September 2021. US$162 billion is the total capital investment by CDM projects, including Programmes of Activities (PoAs), that have been issued CERs. This is a conservative estimate, because not all projects reported their financial details. The US$162 billion is estimated from a fraction of projects with CERs issued (N = 2,786) that collectively accounts for 69.5% of estimated ( ex ante ) annual emissions [ 5 ].

This article assesses the emission reductions outcomes of 3,311 CDM projects that have been issued CERs. The main objective is to measure project performance by comparing actual emission reductions ( ex post ) with estimated emission reductions ( ex ante ). There were signs of under-performance as early as 2006 [ 4 ], but evidence is conclusive only when most projects are given time to operate to their proposed timeframe. Most projects have a crediting period of either 7 or 10 years, and most of them were registered on or before 2011. We identify the project types and host countries that did not meet the emission reduction targets stated in CDM project proposals, known as Product Design Documents (PDDs). To determine how many CERs to issue, the CDM Executive Board (EB) requires the project proponent to submit a Monitoring Report (MR), which specifies the amount of estimated and actual emission reductions in a given monitoring period. The data we used are derived from these MRs published between 2005 and 2021, and an official CDM project database.

The CDM was also designed to channel carbon finance to the Global South. The size of direct economic contributions to non-Annex I Parties depends on the quantity and price of CER units. Our analysis compares the price expectations of project proponents and market CER prices to understand the discrepancies in economic contributions. We show the extent to which direct economic contributions relative to GDP, are unevenly distributed between higher- and lower-income developing countries. We explain this in terms of the timing of CER issuance and price volatility. Our study covers the active lifetime of the CDM to provide conclusive evidence and insights into the ways forward. The findings raise questions about the effectiveness of the CDM in meeting its targets and delivering equitable outcomes. CDM-style Paris mechanisms may result in similar patterns of uneven distribution of benefits, if their scope and designs largely replicate those of Kyoto mechanisms. These results are particularly important for re-thinking the limits of these mechanisms in delivering development benefits and how they should be designed in order to benefit the economically deprived members of the Global South in more direct and effective ways.

The timeframe of our analysis, which runs from 2005 to 2020, is important for understanding our findings. The first commitment period of the Kyoto Protocol commenced in 2005. The first few years after 2005 witnessed a market boom with higher CER prices. Sharp changes occurred towards 2012, when the first commitment period completed. The end of 2020 is another watershed. The second commitment period concluded on 31 December 2020. The European Union no longer accepts the use of international units, including CERs, for compliance under the EU ETS after 2020. While the CDM continues to operate, no new projects are expected to seek registration.

Emission reduction data were collected from MRs. Other project information was gathered from the official database of CDM projects ( cdm.unfccc.int/Projects/projsearch.html ), including project type, host Party (country), duration of monitoring period, date of CER issuance, and start date of validation. The database was accessed in March 2021 and updated in September 2021 [ 5 ].

2.1 CDM projects included in the analysis

The full CDM database has 8,206 registered CDM projects. Our project-level analysis excluded 352 Programmes of Activities (PoAs), because new projects can be added to the programme without undergoing the complete CDM project cycle, and therefore it is hard to attribute emission reduction estimates to their component Project Activities. PoAs account for 2.2% of all CERs issued [ 5 ]. A total of 3,312 projects (out of 7,854), formally known as CDM Project Activities, have been issued CERs. The first set of carbon units was issued in October 2005, and the latest date of issuance was 30 August 2021. We excluded one project (CDM reference #1) and the first 19 Monitoring Reports (MRs) of another project (CDM reference #3), because their MRs did not clearly specify the amount of estimated emission reductions for the relevant monitoring period and their PDDs did not include a breakdown of yearly estimates. The project activities of these two projects (first 19 MRs of CDM Project #3) generated a total of 66,958,005 CER units. Our analysis on emission reductions is based on the remaining 3,311 CDM projects, which were hosted by 79 non-Annex I Parties.

2.2 Estimating emission reductions and measuring performance

The amount of emission reduction is stated in the MRs of these 3,311 projects. Each project has at least one MR published, and the average is four MRs. There are over 10,000 MRs. Typically, each Monitoring Report has only one issuance record, but those that transcend the first and second Kyoto commitment periods have two records. We reviewed each MR and recorded the amount of actual emission reductions reported by the project proponent, which was verified by an independent auditor and accepted by the CDM EB before CERs were issued. The majority of MRs were revised after reviews, and some of them were withdrawn. We adopted the revised and final versions of MRs and excluded withdrawn MRs from the analysis. Each MR indicates the amount of emissions actually reduced during a given monitoring period, against a ex ante estimate for the same period. We identified 13 MRs that indicate their actual emission reductions exceeding the amount of CERs issued. These 13 MRs reported more actual emission reductions than CERs issued. A common explanation is that the CDM EB requires the amount of CERs issued be capped at the level of average annual emissions estimated in the registered PDD. In analyzing emission reductions, we adopted the value of emissions actually reduced, as reported in the MR. As a result, the aggregate values do not perfectly match the total amount of CERs issued. Duration of monitoring period ranges from 1 days to 4,107 days and averages 419 days (N = 10,999). The start date of the earliest monitoring period was 1 April 2000, and the latest end date was 31 December 2020.

Ex ante estimates are also extracted from MRs. However, some of the pre-2010 MRs do not indicate the amount of estimated emission reductions for the corresponding monitoring period. To document the original expectations of project proponents, we retrieved these emission reduction targets from the first PDD that was approved for registration, rather than the post-registration, revised PDD. Moreover, we did not take the self-reported estimates at face value, but cross-checked the calculation presented in the MR against the approved PDD to ensure accuracy and consistency. We believe that there are typos, miscalculations, and tendencies for strategically choosing variables (e.g., number of actual operating days) to present a lower value of estimated emission reductions in MRs. For some projects, the amount of estimated emission reductions varies every year. We therefore adopted the estimates specific to the monitoring period concerned, rather than the yearly average of the entire crediting period, where applicable. For this reason, we did not use the estimated emission reduction data from the official CDM Database. This database also does not provide data on actual emission reduction, which are gathered from individual MRs.

Performance rate is calculated to indicate the extent in which a project met its pre-determined emission reduction targets within the crediting period(s) in which CERs were issued. It is the ratio of actual emission reductions to estimated emission reductions. Weighted performance rates are used to describe projects (N = 3,311). Each project resulted in a different amount of emission reductions, and therefore its impact on the overall performance rate of a host country or project type is weighted by the total amount of emission reductions generated from this project during the crediting period(s). Average performance rates (not weighted) are used to describe CER issuance records (N = 10,999).

2.3 Comparing carbon prices

We compared the price expectations of project proponents with the market CER prices. A sub-sample of the 3,311 projects was used. An expected price is the level of market CER price predicted by the project proponent. It is the offer price at which they expected to sell their CER units. Price expectations are a key driver of CDM investment decision-making. The expected level of CER price is often stated in the PDD or its attachments for demonstrating the project’s expected higher financial performance over an economic baseline (i.e., return on investment without CER incomes) in order to justify that the investment would create ‘additional’ emission reductions, especially for renewable energy projects [ 6 , 7 ]. We identified expected prices from 2,113 CDM projects. Where multiple expected prices were presented in a PDD, the lowest one was adopted as a conservative estimate (i.e., the closest to market prices, in most cases).

Weighted reference prices are calculated on the basis of market CER prices. It is used in this study to approximate the market value of a CER unit at the time when it was issued, and to compare with the target (i.e., expected price). Our calculation was based on an average value of the daily CER closing prices in the 30 trading days prior to the date of CER issuance. We adopted the prices of monthly CER futures contracts traded in the Intercontinental Exchange, because there was very limited spot CER trading from the end of 2012. Monthly CER futures prices are the closest alternative to spot prices. Spot price is the current price at which a CER unit can be traded for immediate delivery. The price set in a monthly futures contract is usually very close to its spot price, due to the short timeframe. Yet, we were unable to retrieve this price information for CER units issued before March 2008, which account for 5.7% of total CER units issued. We used annual average secondary CER prices obtained from the World Bank’s reports (2007, 2009) to substitute for these missing prices.

Weighting is based on emission reductions. A CDM project might have its CERs issued at different times during or after the crediting period. Accordingly, there were multiple reference prices for the different monitoring periods of the same project. The reference prices of each project were weighted by the amount of actual emission reductions the project generated in the corresponding monitoring period. As a result, these prices reflect the timing of CER issuance. Because CER prices were on a downward trend after 2011, the more the CER units issued in later years, the lower the weighted prices.

These prices are plotted in a graph and ordered by the start date of project validation, which marks the time when the project proposal was submitted for third-party validation [ 8 ]. Same as the ‘Start of Project’s Public Comment Period’ specified in [ 8 ]. The official database of CDM projects includes complete information on the validation start date of each project, which is therefore reliable and consistent for the purpose of research [ 5 ].

2.4 Estimating economic contributions

The volume of CER units generated relative to the GDP of a given host country is used by the UNEP DTU Partnership as “an immediate expression of the importance of CDM to the economy” [ 9 ]. The ratio of these two variables provides an indication of the direct economic benefits of producing and exporting these units, given the economic scale of the host country. We used the amount of actual emission reductions for estimating economic contributions, but also included revenue estimates to account for price variations.

We estimated revenues ( ex post ) from sale of CER units for each of the 3,311 projects, which are the product of actual emission reductions in a given monitoring period and the reference CER price (without weighting). Because we used secondary market prices as reference prices, the value of CER units generated from ‘bi/multilateral’ CDM projects might have been underestimated. Bi/multilateral projects have a formal arrangement at the time of project development with an Annex I Party that intends to buy and use the credits. They operate under a forward purchase agreement, which typically specifies a mutually agreed price level or a price range at which the CER units generated from the project would be sold to a buyer from an Annex I Party. Purchase agreements with set prices could protect project proponents and host countries from volatile prices. On the other hand, ‘unilateral’ CDM projects do not have a letter of approval from an Annex I Party at the time of registration and do not have a prior contractual arrangement with an international buyer [ 2 ].

We do not have access to all forward transaction data and therefore cannot include agreement prices in our analysis. Despite this limitation, our revenue estimates are useful for comparing economic contributions between countries. Many emission reduction purchase agreements are guaranteed only up to 2012 [ 4 ], but over 45% of CER units were issued after 2012. Agreement on a transaction price was typically reached long before the project started and therefore likely to be higher than market prices, which began to fall sharply from 2011. The large differences between the two prices since 2011 challenge the assumption that all purchase agreements would be exercised at the indicative prices and volumes [ 10 ]. CER units might eventually be sold outside the range of these agreement prices—likely at a lower level, given the availability of significantly cheaper CER units in the market. Renegotiations and cancellations did occur. Official data suggest that 19% of buyers have withdrawn from the bi/multilateral projects to which they were committed [ 9 ]. Moreover, 69.6% of all CDM projects were bi/multilaterally established ( Table 1 ), but China alone accounts for most of these projects and has an exceptionally high percentage of bi/multilateral projects. Excluding China, less than half of the CDM projects were bi/multilaterally established. Although market prices do not perfectly reflect actual transaction prices, the changes in the latter track market trends. This is important for the purpose of this analysis, which aims to highlight the time-sensitive economic contributions of the CDM in a period of over 15 years.

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https://doi.org/10.1371/journal.pclm.0000046.t001

The revenues analysis adopted the amount of CERs issued, rather than actual emission reduction, because only CERs are traded in the market. All revenue estimates were discounted by 2% to account for the transfer of proceeds from CER sales to the Adaptation Fund established under Kyoto Protocol. To address the different price levels at different times of CER issuance, the aggregate revenue estimates were converted to 2010 prices using the International Monetary Fund (IMF) Euro Area GDP deflators for the time (year) of CER issuance.

For estimating economic contributions to individual host countries, the IMF GDP estimates were adopted as denominators and expressed in Euro (converted from USD using year-end exchange rates). The ratio between revenues (current prices) and GDP was calculated for each country and each year between 2005 and 2021, using the nominal GDP estimate for that year. The values were then aggregated for each country. Project type, geographical region, Commitment Period, host country and whether it is a ‘Least Developed Country’ (LDC) were specified in the CDM database.

2.5 Summary

The key measures and indicators used in the analysis are listed below:

• Actual emission reductions : as stated in CDM Monitoring Reports. They indicate the amount of net GHG emissions reduced, avoided or sequestered in the combined monitoring periods of a project and determine the amount of CERs issued. Combined monitoring periods are the fraction of crediting period(s) in which CER units were issued.
• Estimated emission reductions : as stated in CDM Monitoring Reports and PDDs. These estimates are a fraction of the total estimated emission reductions of a CDM project and represent what was expected to achieve in the combined monitoring periods. The remaining emission reductions to be generated in the rest of the crediting period(s) (i.e., CERs yet to be issued) was excluded.
• Performance rate : ratio of actual emission reductions to estimated emission reductions.
• Expected CER price : as stated in PDDs. Representing the offer price expectation of the CDM project proponent and the expected revenues per CER credit sold. Non-Euro currencies were converted to Euro, at the exchange rate at the start date of validation.
• Weighted reference price : average value of the daily prices of monthly CER futures contracts over the 30 trading days prior to the date of CER issuance. The average values calculated for each project were weighted by the amount of actual emission reductions the project generated in its corresponding monitoring period.
• Estimated revenues : product of the CER units issued in a given monitoring period and the reference price at the date of CER issuance. Discounted by 2% and converted to 2010 prices.
• Economic contributions: ratio of 1) total amount of actual emission reductions, and 2) estimated revenues, to the GDP of a given host country.

3.1 Emission reductions

The 3,311 CDM projects reduced 2,043 million tonnes of emissions, which is 16.4% below the aggregate PDD forecasts (2,444 million). Fig 1 shows the amount of emission reductions by host country and region. The extent in which actual emission reductions depart from PDD forecasts is indicated by the size of the black rings. LDCs and the five largest CER producers (i.e. China, India, Brazil, South Korea, and Mexico) are separately listed. China has a weighted performance rate of 0.87, which is higher than average (0.84). Without China, which hosted nearly half (1,615) of the 3,311 CDM projects, the average would be 0.80. Although LDCs were responsible for a very small share (1.9% of total), most of their projects achieved 80% of their target or more. African LDCs generally performed better than the rest of the world, but the rest of Africa was not. It should be noted that these discrepancies can be attributed to inflated emission baselines or poor project performance, or both.

African LDCs include Burkina Faso, Democratic Republic of the Congo, Ethiopia, Lesotho, Madagascar, Mali, Malawi, Niger, Rwanda, Senegal, Tanzania, Uganda, and Zambia. Asian LDCs include Bangladesh, Bhutan, Cambodia, Lao PDR, Myanmar, and Nepal. Total actual emission reductions: 2,043 million tCO 2 e. Total estimated emission reductions: 2,444 million tCO 2 e. Performance rate is the ratio of actual and estimated emission reductions. N = 3,311.

https://doi.org/10.1371/journal.pclm.0000046.g001

Project types explain some of these results. Fig 2 shows the top 15 CDM project types by estimated emission reductions. Industrial HFCs and N 2 O projects exceeded their targets. These projects involve destruction of HFCs and N 2 O gases from industrial processes, which are of high global warming potential and generate a disproportionately large amount of emission reductions. There are only 79 HFCs and N 2 O projects, but they produce 10.6 million tonnes of CO 2 e each on average and account for 41% of total actual emission reductions from all projects. South Korea and China generated 85.0% and 44.6% of their emission reductions from these projects respectively, much higher than India (24.9%). These three countries were responsible for over 80% of all HFCs and N 2 O-based emission reductions. Excluding these 79 projects from the sample (N = 3,311) reduced the overall performance rate from 84% to 74%. Despite their effectiveness in meeting emission reduction targets, HFCs projects are highly controversial and have been called into question for creating perverse incentives for manufacturing more of these gases to increase baseline emissions, by which to maximize CER revenues. It is likely that part of the claimed or reported emission reductions are not real and additional, raising question about the environmental integrity of these projects [ 11 , 12 ]. These projects are no longer accepted for CDM registration since 2007.

All others (project types) include: PFCs and SF6, cement, energy efficiency (industry), transport, energy efficiency (households), afforestation, energy distribution, tidal, energy efficiency (service), mixed renewables, CO 2 usage, and agriculture. Total actual emission reductions: 2,043 million tCO 2 e. Total estimated emission reductions: 2,444 million tCO 2 e. Performance rate is the ratio of actual and estimated emission reductions. N = 3,311.

https://doi.org/10.1371/journal.pclm.0000046.g002

The majority of CDM projects (1,950) produce hydro and wind power. Few of these projects achieved their emission reduction target. Their MRs have suggested several reasons. Emission factors were declining in some countries, meaning that the burning of fossil fuels becomes less polluting over time and therefore renewable energy displaced fewer emissions than proposed. Weather is a more common explanation. Seasonal variations are foreseeable, but the availability of water (rains) and wind is more often overestimated than less. Another reason, which is not always explicitly stated in MRs but widely discussed elsewhere, is a mismatch between policy intervention and actual need. China, for example, produced 67.4% of all emission reductions based on wind, hydro, and solar power. The Chinese government has considerably increased the incentives for installing renewable energy capacities, mobilizing a massive amount of private and public capital into these industries. However, the installed capacity booms did not meet with actual energy demand and improvements in the capacity of supporting infrastructure, resulting in excess supply and eventually curtailment of wind, hydro, solar power across the country [ 13 – 15 ]. The reduced operation of power generating facilities inevitably left more emissions unabated.

Landfill gas and methane avoidance projects recorded the lowest performance rates among project types with more than 100 projects issued CERs. Both of them involve the handling and disposal of waste, but landfills reduced more emissions. Landfill gas projects involve the capture and degradation of the methane and CO 2 produced during landfill waste decomposition by flaring or use for power generation. Mexico achieved only 67% of its ex ante emission reductions. Fifty-one Mexican projects, out of 72, involved either landfill gases or methane avoidance. Project performance was remarkably low. One of these projects (CDM reference #1371) commenced in 2008, but achieved only 3.5% of the pre-project estimate during a five-year monitoring period from 2015, citing non-operation in 1,531 days (out of 1,824 days). On average, these 51 projects departed from their targets by over 50%.

Their MRs attribute poor performance to factors such as low efficiency of the gas capturing systems, gas release resulting from exposure of historical waste during infrastructure installation, and lower baseline emissions due to a change in local regulations causing decreased waste disposal (CDM reference #1123, #2992, and #4211). Some landfill sites begin as unmanaged dumping grounds which are not run by the government and therefore historical records of landfill activity can be unreliable or inaccessible, making it difficult to estimate the historical waste composition which is a key determinant of landfill gas production [ 16 ]. New legislations and policies that promoted waste minimization also resulted in unexpectedly smaller volumes of disposed waste delivered to the landfill sites, directly reducing the baseline GHG emissions that would have been released into the atmosphere (CDM reference #4211). Other reasons listed in MRs (all project types) include poor estimation before project implementation, accidents, maintenance and repairs, natural hazards, and changes in economic conditions.

CDM projects consistently under-performed over time. This is clearer for countries and regions with more issuance records available, including China, India, and the rest of Asia and Latin America, which account for 81.1% of all CER issuance records ( Fig 3 ). Similarly, the average performance rates of wind power, hydropower, methane avoidance, biomass energy, and landfill gas projects varied before 2010 but became steady afterwards ( Fig 4 ). These five project types account for 74.3% of all issuance records. The fewer emissions actually reduced directly lead to a smaller amount of carbon finance. This is exacerbated by the shrinkage of the CDM market from 2011.

The data reported here represent 10,999 CER issuance records. Each record indicates the amount of emission reductions achieved by a CDM project in a given monitoring period. A monitoring period is a fraction of a project’s crediting period in which actual emission reductions are monitored and verified. Performance rate is the ratio of actual and estimated emission reductions, and the values presented are averages and not weighted. African LDCs include Burkina Faso, Democratic Republic of the Congo, Ethiopia, Lesotho, Madagascar, Mali, Malawi, Niger, Rwanda, Senegal, Tanzania, Uganda, and Zambia. Asian LDCs include Bangladesh, Bhutan, Cambodia, Lao PDR, Myanmar, and Nepal. Rest of Asia (non-LDCs) excludes China, India, and South Korea.

https://doi.org/10.1371/journal.pclm.0000046.g003

The data reported here represent 10,999 CER issuance records. Each record indicates the amount of emission reductions achieved by a CDM project in a given monitoring period. A monitoring period is a fraction of the project’s crediting period in which actual emission reductions are monitored and verified. Performance rate is the ratio of actual and estimated emission reductions, and the values presented are averages and not weighted.

https://doi.org/10.1371/journal.pclm.0000046.g004

3.2 Carbon prices

Price expectations and market prices moved in the same direction up to a point. Fig 5 displays the movement of expected prices and weighted reference prices between 2003 and 2020, along with the daily closing prices of CER units. The discrepancies between expected and market prices increased since the middle of 2008. CDM projects that began validation at a later time were less likely to reach the forecasted price when their CER units were available to the market. In 2011, it became clear that CER units could only be used to a limited extent in the phase 3 (2013–2020) of the EU ETS. This triggered a collapse of CER prices, as the EU ETS was the largest buyer of CER units. While the CER prices struggled to return to higher levels, a small number of projects proposed around this time continued to show confidence in the price. There were tendencies for overestimating CER prices, or being too optimistic.

Expected price refers to the offer price of CER units forecasted by the CDM project developer. Price expectations are identified from 2,113 CDM PDDs or their attachments. Daily closing price refers to monthly CER futures contracts. Weighted reference price refers to the average value of the daily prices of monthly CER futures contracts over the 30 trading days prior to the date of CER issuance, which is weighted by the amount of actual emission reductions the project generated in the corresponding monitoring period. All datapoints are ordered by the start date of validation as indicated in the CDM Database. Each of the 2,113 CDM projects represented is marked by one expected price and one weighted reference price.

https://doi.org/10.1371/journal.pclm.0000046.g005

The decrease in price disadvantaged countries that issued CERs in more recent years, notably the LDCs. This can be illustrated by mapping estimated CER revenues.

3.3 Economic contributions

The direct economic contributions of the CDM are unevenly distributed. Nonetheless, the differences are relatively small, indicated by the low contrasts in filled colours ( Fig 6 ). About 53.5% of CER units were issued on or before 2012. Emerging economies, particularly China, earned most of the CER units, but some LDCs held a fair share of the market. The main driver was the EU ETS, which would accept new project credits/CERs after 2012 only if the project is registered in one of the LDCs. As a consequence, the demand for CER units from non-LDCs diminished, and investment in CDM projects hosted by a LDC increased. The biggest beneficiaries were Asian LDCs. Bhutan, Cambodia, and Lao PDR hosted 19 CDM projects and earned 903, 339, and 286 CER units per million GDP (Euro), respectively. Hydropower contributed to 98.3% of the CER units issued to them.

Only non-Annex I Parties with CERs issued are included. Democratic People’s Republic of Korea (North Korea) is excluded as GDP estimates are not available in the IMF database.

https://doi.org/10.1371/journal.pclm.0000046.g006

Total revenues for the first and second Kyoto commitment periods are estimated as €10,480 million and €173 million (2010 prices) respectively. Host countries do not receive a fair share proportionate to their economic scale, because their CER units were issued in different periods of time. The decrease in CER price intensified the uneven distribution of benefits between large emerging markets and small LDCs. Fig 7 shows the amount of estimated CER revenues relative to nominal GDP. The clearer contrasts in colour reflect the effects of price and timing of CER issuance. China stands farther apart from other non-Annex I Parties by generating a disproportionately large return from the CDM. India, South Korea, and Brazil are three other larger national beneficiaries. Revenues was also high for lower-middle income economies (non-LDCs), such as Nicaragua, Vietnam, and Bolivia. In contrast, these estimates were remarkably lower for Asian LDCs, including Bhutan, Cambodia, and Lao PDR, and African LDCs, notably Uganda and Lesotho.

Revenues are the product of CERs issued and reference CER price. Only non-Annex I Parties with CERs issued are included. Democratic People’s Republic of Korea (North Korea) is excluded as GDP estimates are not available in the IMF database.

https://doi.org/10.1371/journal.pclm.0000046.g007

The small pie charts at the bottom of Figs 6 and 7 suggest that China, India, South Korea and Brazil together earned 81.1% of all CER units issued, but accounted for 90.2% of the estimated revenues (or 90.5% for the first Kyoto commitment period). This implies that the average market value of their units is higher than those of the rest of the world. The differences between China and other host countries are likely to be larger than presented in Fig 6 , because China has an exceptionally high proportion of bi/multilateral partnerships which could shield revenues from sliding prices–much higher than its ‘competitors’, namely, India, South Korea, and Brazil (see Table 1 above). Therefore, the economic benefits of the CDM are highly concentrated in a handful of emerging economies, especially China.

The timing of project and CER issuance contribute to an uneven distribution. As indicated in Fig 8 , emerging economies had a large proportion of their CER units issued on or before 2012, followed by the rest of Latin America ( Fig 8B ). Benefits to these countries were comparatively attractive, thanks to the higher prices in the first few years of CDM implementation. LDCs were underrepresented in the market until 2012, when they gained momentum from European and international policy interventions that supported LDC participation ( Fig 8C ). However, revenues from the post-2012 market were lower, even if the sale prices were protected by purchase agreements, as most of which were established in the later years and reflected the declining market conditions. This remains true, but to a lesser extent, for the rest of Africa and Asia ( Fig 8D ). The direct economic contributions of the CDM were disproportionately small for most African and Asian host countries other than China, India, South Korea, and Vietnam.

African LDCs include Burkina Faso, Democratic Republic of the Congo, Ethiopia, Lesotho, Madagascar, Mali, Malawi, Niger, Rwanda, Senegal, Tanzania, Uganda, and Zambia. Asian LDCs include Bangladesh, Bhutan, Cambodia, Lao PDR, Myanmar, and Nepal. Rest of Asia (non-LDCs) excludes China, India, and South Korea. Europe and Oceania are represented by 7 and 6 CDM projects respectively.

https://doi.org/10.1371/journal.pclm.0000046.g008

4. Discussion and conclusions

New carbon crediting mechanisms under the Paris Agreement present an opportunity for redressing some of the previously unforeseen or underestimated problems of Kyoto mechanisms. The CDM is part of the global action to create a cleaner and more equitable future by financing emission reduction activities in developing countries. CDM projects that have been issued CERs are in principle able to produce 4.6 billion CERs to the end of 2020 [ 17 ]. This Kyoto mechanism has presented a steep learning curve for its successors [ 18 , 19 ].

A total of 3,311 registered CDM projects have reduced, avoided or sequestered a minimum of 2,043 million tCO 2 e. This is 16% below the original PDD forecasts, or 26% lower if the controversial HFCs and N 2 O gas projects are excluded. Carbon prices moved in the opposite direction as CDM project proponents forecasted. The extended period of low prices could reduce the incentives for operating the project and bring it to a halt. In this situation, the project proponent could manage to support the project using internal resources or through conventional financing [ 6 , 20 ], implying that international finance through the CDM would no longer play a decisive role–even if the project continues to reduce emissions. Furthermore, the economic benefits of the CDM were concentrated in emerging economies. Direct benefits to LDCs were disproportionately smaller, because more of their CER units were subject to the frustrating prices.

The results shed light on the financing outcomes of the CDM. The amount of carbon mitigation finance mobilized did not meet prior expectation. For instance, in October 2009, the World Bank anticipated that the CDM could raise €13.5 billion (US$18 billion) in direct carbon revenues for developing countries by the end the first Kyoto commitment period [ 21 ]. Our conversative estimate (€10.5 billion) is 22.2% lower. This is conservative because secondary market prices are typically higher than the direct financial benefit to host countries [ 20 ]. According to our data, the pre-2012 weighted average price of CERs was EUR 12.49 (constant 2010 prices). Annual reports of the World Bank suggest that the weighted average price in the primary CER market between 2005 and 2012 was EUR 9.37 (constant 2010 prices) [ 15 , 20 , 27 , 28 ]. This raises questions about the effectiveness of the CDM in mobilizing finance, considering that the mechanism itself was a significant global investment and involved massive resources and efforts in negotiation, coordination, and operation.

The financing outcomes do not appear equitable. The World Bank anticipated that China, India, South Korea and Brazil would receive 78.3% of direct carbon revenues by the end of the first commitment period [ 21 ], whereas our study suggests 90.5% for the same period. Large emerging economies have considerable advantages over the poorest ones. For example, the Chinese government required local project proponents to identify an Annex I Party partner before seeking national approval and therefore many Chinese CDM projects are bound to purchase agreements. This could protect the country’s interests from the price collapse since 2010, and reflects the stronger institutional support provided by the Chinese government for building international partnership for CDM activities [ 22 , 23 ]. LDCs, on the other hand, did not gain any advantage during the market boom before 2012. The post-2012 rules that prioritized LDCs met with a market downturn. Earlier research has raised questions to the ability of the CDM to deliver development benefits [ 24 , 25 ]. We echo these previous studies by suggesting that the design of the CDM, market volatility, and differential capacities for project development result in a ‘development deficit’ that Paris mechanisms must address.

The unmet expectations are concerning in the wake of the Paris Agreement. Systematic under-performance can be an indication of certain problems and loopholes in the processes of project registration and auditing gone undetected. There have been reports of inflation in baseline emissions and price expectations, and strategic manipulation of project variables in order to demonstrate feasibility and additionality [ 6 , 8 , 26 – 28 ]. Under-performance can also arise from poorly designed or managed projects. If these problems and loopholes are actually more significant and prevalent than previously documented, the performance of the mechanism may be even lower than reported here. A strong rulebook under Article 6 and measures for enhancing regulatory effectiveness would be important for ensuring the reliability of project proposals and audit reports, and the performance of projects.

Unlike the Kyoto Protocol, the Paris Agreement requires Parties to formulate their NDCs, which are voluntary emission reduction targets. The bottom-up approach for determining emission reduction targets can lead to a lack of ambition in controlling domestic emissions and consequently weaken the aggregate demand for carbon units [ 19 , 29 ]. Sharp reductions and movements in carbon price as a result of changes in national or international commitments could marginalize economically deprived members of the Global South in the processes of project development, implementation, and transferring carbon units. LDCs arguably encounter more barriers than large emerging economies. As recipients of carbon finance, their economic interests in the international transfer of carbon units risk being compromised by the volatility of the market, which can arise from a unilateral decision to retreat from climate action by dominant GHG emitting countries and a rapid decline in demand from these countries. Ambitions in emission reduction, programme continuity, and additional institutional support to economically deprived Global South countries will be crucial for delivering equitable outcomes under the new crediting mechanisms.

Acknowledgments

This research was supported by the National Natural Science Foundation of China through a grant awarded to the first author under the Young Scientists Fund (Grant No.: 41601605).

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The clean development mechanism in Eastern Europe: an in-depth exploration

José m. cansino.

1 Departamento de Análisis Económico Y Economía Política, Universidad de Sevilla, Avda. Ramón Y Cajal, 1. Postal Code, 41018 Seville, Spain

2 Universidad Autónoma de Chile, Av. Pedro de Valdivia 425, 758-0150 Providencia, Santiago Chile

Rocío Román-Collado

Sari nassar, associated data.

Upon reasonable request.

The Clean Development Mechanism (CDM), a partnership tool founded under the Kyoto Protocol, grants potential opportunities to help developing countries achieve sustainable development. The present research examines the CDM projects in Eastern Europe (Moldova, Serbia, Bosnia and Herzegovina, Montenegro, and Albania). Although there were far fewer projects in this region than, for instance, China or India, it has some specific features that make it worth studying. Major findings are that most CDM projects in Eastern Europe involved a changing combination of two or more sources of financing, and the distribution of projects in the region was uneven. Moreover, although there was a small number of projects overall, they were all cost-effective, long-term and large-scale. The findings of the research call for improvements to be made to the governance of the CDM, by strengthening the international and national regulation of projects and by aggregating the scales of decision-making and actions so that real multi-scalar transnational governance — from the global level down to the local level — is implemented in a coherent manner. It is also recommended to carry out ex-post project evaluations, following which readjustments could be made.

Introduction

The Kyoto Protocol (KP) introduced a fundamentally new approach in the form of a cooperation tool aimed at reducing the costs associated with limiting greenhouse gas (GHG) emissions. Since climate change mitigation does not depend on where the emission reductions occur, a reasonable economic approach is to reduce them to the lowest possible level everywhere.

Accordingly, the KP provided three market mechanisms to maximize emission reductions: international emissions trading, joint implementation (JI), and what is known as the Clean Development Mechanism (CDM). In particular, the protocol stated that the CDM should help industrialized countries (those listed in Annex 1 of KP) to reduce the cost of meeting their emission reduction targets by implementing measures in other countries at lower costs than potential domestic costs (UNEP 2004 ; Huang and Barker 2012 ). The CDM acts as an international carbon trading mechanism linking Annex 1 (industrialized) countries to non-Annex 1 (developing) countries (Tang et al. 2022 ). The CDM offers countries and the private sector the opportunity to reduce GHG emissions anywhere in the world and count these reductions towards meeting their quantitative obligations (Jotzo and Michaelowa 2002 ; Cui et al. 2020 ; Benites-Lazaro et al. 2018 ). With the help of emission reduction projects, these mechanisms could stimulate international investment and ensure the flow of necessary resources for cleaner economic growth in all regions of the world. 1

The significance of CDM projects has been raised by many researchers, including Hepburn ( 2007 ), Ruthner et al. ( 2011 ), Lückge and Peterson ( 2004 ) and Michaelowa and Dutschke ( 2002 ). Their research shows that there is still no unambiguous interpretation of the concept of the effectiveness of CDM projects and how to assess whether they fulfil their environmental prerequisites. Nor do we find a general methodological approach to CDM implementation in different areas and regions (Anger et al. 2007 ). Both in theory and in practice, CDM projects represent interaction within the framework of modern environmental cooperation.

The CDM projects aim to promote sustainable development in the host countries. However, the final decision on whether a particular project meets sustainable development criteria lies with the host country government. Adopted in 2015, the Sustainable Development Goals (SDGs) established a set of goals and targets to work towards in order to achieve sustainable development, focusing on the three dimensions of sustainable development: social, economic and environmental. The SDGs include a set of specific indicators for each target, which allow progress to be monitored in each case (The Danish Institute for Human Rights n.d.). The screening of CDM projects according to sustainable development criteria has the same aim. Specifically, from an economic and environmental perspective, SDG 7 and SDG13 are similar to the primary aims of CDM projects 2 as they cover progress to more sustainable energy consumption and climate action. However, there are other goals linked to sustainable performance from a more general perspective that might be considered. Considering the results of CDM projects in terms of these objectives can help to assess their effectiveness. To do so, specific indicators linked to targets in SDGs which are related to the CDM can help to assess CDM projects.

From SDG 7 and 13, the relevant indicators are 7.2.1 renewable energy share in the total final energy consumption, 7.3.1 energy intensity measured in terms of primary energy and GDP, 7.b.1 installed renewable energy-generating capacity in developing countries (in watts per capita), 13.1.1 number of deaths, missing persons and directly affected persons attributed to disasters per 100,000 population and 13.1.2 number of countries that adopt and implement national disaster risk reduction strategies in line with the Sendai Framework for Disaster Risk Reduction 2015–2030. However, assessing the impact of the CDM projects analysed in terms of these indicators goes beyond the scope of this paper.

Notwithstanding a number of studies in the field of CDM projects and renewable energy sources (RES), there are few analyses of specific CDM projects in the countries under study here, 3 despite the fact that this region is of particular interest as it has the highest energy intensity in Europe. Taking a closer look at the energy situation in this region confirms the scarcity of related scientific publications and research papers. Furthermore, this region is of special relevance considering that the geography of the region and its location in Europe sets the direction for the overall energy security of European countries (Lalic et al. 2011 ).

In view of the lack of research focused on Eastern Europe, the main aim of this work is to contribute to bridging this gap in the knowledge by examining various CDM projects in these countries, specifically, Moldova, Serbia, Bosnia and Herzegovina, Montenegro, and Albania. The region under investigation in our study was not chosen by chance. These countries are home to a considerable number of RES projects. Due to the critical proximity of these countries to the European Union (EU), they have a direct impact on the energy system of the European continent and its energy security.

The novelty of this paper lies in the methodological approach applied. The CDM projects are studied here not only from a financing perspective, but also taking into account the main economic and environmental features essential for the sustainable development of the host countries. To do so, the fundamentals of the projects and their goals are described in detail, the concept of “project efficiency” is analysed and the effectiveness of the projects is considered, including their economic and environmental efficiency. The analysis of the results of these projects in terms of economic and environmental efficiency is primarily based on statistical and financial data on the reduction of GHG emissions and quantitative indicators. Finally, this paper explores possible problems in the CDM decision-making process.

To the best of our knowledge, no previous papers have focused on this issue. The recent conflict between Russia and Ukraine has shone a light on European countries’ dependence on Russian gas. Given that many of the projects analysed in this research consist of replacing fossil fuel technologies, such as natural gas, with RES, the research is also of geostrategic interest.

The main findings show that most of the analysed CDM projects involved a changing combination of two or more sources of financing, and the distribution of projects in the region was uneven. Moreover, although there was a small number of projects overall, they were, without exception, all cost-effective, long-term and large-scale projects. The study highlights the contribution of these projects to sustainable development from an environmental and economic perspective.

The paper is structured as follows: After this introduction, the second section presents the literature review. The third section describes the method while the fourth section explains the data. The results are analysed and discussed in the fifth section. The conclusions are explained in the sixth section, along with some policy implications.

Literature review

Studies of CDM projects tend to prioritize their temporal analysis and the interdependence between the result and the commencement date of the project (Liu et al. 2018 ). The measurement of various effects can be distorted over time, leading to inaccurate data and inconsistencies between the projected scenario and real emission reductions. Even when conducting a Cox regression analysis of the projects, it is worth paying attention to the additional calculations so as not to overlook some interdependent variables.

First of all, most CDM projects are effective in the short term, but ineffective in the long term, which casts doubt on this mechanism as a whole (Hepburn 2007 ; Cassimon et al. 2014 ). Within the sustainable development pathway, project indicator scores are very low, and the investment flow to these projects is targeted at a very narrow list of countries, which leads to geographic concentration of projects. A report published by the European Commission (Ruthner et al. 2011 ) conducts a thorough analysis of the current situation of CDM projects in Europe, addressing the policy from both the demand side and the supply side (Burtraw et al. 2007 ).

Fulfilment of KP commitments has posed challenges for countries to overcome, which may be solved by joining forces in the implementation of projects. The KP offered countries different mechanisms for sustainable development (Kiel Institute for World Economics 2004 ). The main distinguishing feature is the creation of national plans for EU members to build a more unified policy on the implementation of KP commitments. Countries with economies in transition receive investments from technologically developed countries (Alberola et al. 2008 ), primarily in the form of innovative technologies (Lowitzsch et al. 2020 ). However, despite the rapid development of the CDM system, the value of involving the private sector in project financing is rising (Michaelowa and Dutschke  2002 ). The CDM is seen as an opportunity to boost economic growth while reducing environmental emissions, that is, achieving the so-called net zero emissions economic growth in the framework of sustainable development. In other words, the CDM helps to break the link between economic development and environmental degradation (Koondhar et al. 2021 ).

The financing and construction of an energy facility (as well as its operation during the first few years) are assigned to a specially created project company. Nonetheless, it is worth noting that in recent years, the number of investments in the field of RES has been growing rapidly (Kirkman et al. 2013 ). Collective investment in such projects plays a prominent role in increasing the profitability of the project and improving its performance, but there is a lack of assessment and policy analysis of the environmental impact (Bossink 2017 ; Liu et al. 2019 ).

To achieve its climate goals, the energy market in Eastern Europe needs to transition from a system based on fossil fuels to a system based mainly on RES. First of all, the current balance of the state energy system must be examined, which will help to fully understand the general landscape and development paths of the country’s electrical production (Nikolakakis et al. 2019 ), as well as individual aspects, such as private sector optimization in energy consumption matters (Shankar et al. 2020 ).

The key to reducing emissions is improving efficiency in energy consumption. The advantages of integrating energy systems into a single energy system include achieving a more complete use of energy resources (Zhou et al. 2018 ; Acerbi et al. 2021 ; Kostakis and Tsagarakis 2022 ; Jahanger et al. 2022 ). CO 2 emissions into the atmosphere can be reduced by changing both energy consumption and the electricity production system (Hawkes 2014 ).

One of the most important conditions for achieving global climate policy goals, preventing climate change as far as possible and adapting to and mitigating its consequences is the development of the innovative technology sector through international scientific and technical cooperation (Zhang and Yan 2015 ; Jiang et al. 2022 ). In this regard, climate agreements focus on the development and transfer of technologies (Das and Kasturi 2011 ), with a view to bridging the global technological gap. Indeed, such technologies play a central role in the ability to respond to the challenges associated with the negative effects of climate change (Gaast and Begg 2009 ). By involving developing countries in this partnership and better enabling their access to technology in the early stages of the technological cycle (Dixona et al. 2013 ), the conditions are being created for access to new environmentally-friendly technologies (Dixon et al. 2013 ). Such technologies should be introduced as soon as possible to help prevent climate change and adapt to the change that does occur (Gaast and Begg 2009 ).

Both market and non-market mechanisms play an important part in the transfer of carbon capture and storage (CCS) technology (Zakkour et al. 2014 ). The development of this technology facilitates the implementation of projects and the achievement of basic goals in primary scenarios for reducing GHG emissions (Dixon et al. 2013 ; Das and Kasturi 2011 ). Some organizations such as the World Bank and the Asian Development Bank have a significant role in promoting CCS in the framework of CDM (Lema and Lema 2013 ).

The objective of studies such as those by Manton et al. ( 2010 ), Chao and Feng ( 2018 ) and Burniaux et al. ( 2009 ) is to outline the most urgent global problems related to assessing the current climate situation and climate change projections in specific regions. This includes assessing the degree of anthropogenic impact on the climate (Hawkes, 2014 ); determining the main areas of climate research in developing countries, needed to prepare regional forecasts and economic and social development programmes; and presenting proposals on the climate doctrine concept (Manton et al. 2010 ). The factors driving climate change influence the flow of investments from Annex I countries to other countries where certain KP mechanisms might be implemented.

Papers that study the energy transition and the associated potential for Bosnia and Herzegovina can be divided into two groups. The first group examines the issue of RES in Bosnia and Herzegovina, a country which is certainly rich in such resources (Begić and Afgan, 2007 ; Karakosta et al. 2012 ). The second group specifically considers the strengths of the potential of Bosnian energy: hydropower and biofuels (Dogmus and Nielsen 2019 ).

In Albania, the main source of RES is hydroelectric power plants, although this entails energy problems during low tide and low water levels. Albania has a high potential for the development of RES (Xhitoni, 2013 ; Rickerson and Perroy 2005 ); however, it is worth noting that the strong points are biofuels, geothermal energy, and hydropower (Karaj et al. 2010 ; Frasheri 2013 ).

Over the past two decades, Serbia and Montenegro have made progress in the areas of RES and energy efficiency. Governments have developed various goals and policies to promote the use of RES in the region (Tešić et al. 2011 ). From a global perspective, however, their contribution remains negligible. For the Balkan region as a whole to reach the level of development of the global RES market, there is a need for increased investment flows and the implementation of related projects (Lalic et al. 2011 ).

Southeastern Europe accounts for a significant share of the continent’s RES potential. Albania, Bosnia and Herzegovina, Macedonia, Montenegro and Serbia have preferential tariffs in place to support their RES development goals (Komarov et al. 2012 ). National action plans have been approved in Montenegro and Serbia, as part of their membership of the Energy Community and in accordance with the requirements of compliance with EU Directive 2009/28/EC (Tešić et al. 2011 ). Wind energy accounts for a relatively large share of RES in Serbia and Montenegro (Mikicic et al. 2006 ) and is a fledgling source of RES in Serbia. In 2018, wind power provided 0.36% of the total electricity generated in Serbia, up from 0.15% in 2017 (Komarov et al. 2012 ). At the same time, Serbia has major potential for the energy use of biomass from agriculture and forestry (Cvetković et al. 2014 ).

The research on Moldova’s energy system pays special attention to heating (Gribincea 2013 ). The energy efficiency policy of Moldova is shaped by a combination of its energy problems and obligations due to its status of a member of the Energy Community. Moldova depends on energy imports, which provide 96% of its final consumption. The country receives financial support from several international donors for the development and implementation of energy efficiency regulation policies, including from the European Bank for Reconstruction and Development, the EU, and the United Nations Development Programme. Moldova occupies a leading position in the field of biogas and biofuels, in terms of the percentage they represent in the electricity generation sector. Non-economic barriers further drive up the cost of developing RES in the region (ŢÎŢEI 2002 ), while legal, administrative and institutional difficulties delay the implementation of related projects.

CDM. Definitions and method

Cdm project implementation phases.

The CDM allows a party included in Annex 1 to implement a project to reduce GHG emissions or to remove GHG by absorbing carbon or promoting carbon sinks in the territory of a party not included in Annex 1 (Criqui and Kitous 2003 ). The resulting certified emission reductions (CERs) can then be used by the first party to offset its emissions in order to reach its emission reduction target (Convery 2009 ). CDM projects should be approved by all parties involved, lead to sustainable development in the host countries, and have a real, measurable and long-term effect on mitigating climate change. In addition, these emission reductions should be complementary to any reductions that could have been achieved without such a project. To participate in the CDM, countries must meet certain eligibility criteria (Burian 2006 ). All Parties must fulfil three basic requirements: voluntary participation in the CDM, designation of a national CDM body and ratification of the KP. Also, industrialized countries (usually Annex I) must meet several additional requirements: establishing certain quantitative obligations under Article 3 of the KP, having a national system for estimating GHGs, having a national registry, an annual inventory, and accounting systems for the acquisition or sale of emission reductions (UNFCCC 2012 ; Lee and Jang 2022 ; Dong et al. 2022 ; Huang et al. 2022 ). Figure  1 provides an overview of CDM architecture.

CDM architecture. Source: own elaboration

The CDM covers projects in the following seven sectors: (1) improving user-level energy efficiency; (2) improving energy efficiency in energy production; (3) RES; (4) fuel change; (5) agriculture (reduction of CH 4 and N 2 O emissions); (6) industrial processes (CO 2 in cement production, etc., HFCs (hydrofluorocarbons), PFCs (fluorocarbons), SF 6 (sulphur hexafluoride), NF 3 (nitrogen trifluoride)); and (7) absorption projects (afforestation and reforestation only). To ensure the competitiveness of small-scale projects in comparison with large-scale projects, the Marrakesh Accords provide for a simplified procedure with less stringent acceptance criteria. The CDM also covers the use of RES up to 15 MW, or energy efficiency with a lower consumption (either on the production side or on the consumption side) up to 15 GWh/year, and other project activities that both help reduce emissions and directly emit less than 15 thousand tonnes of CO 2 equivalent (CO 2eq ) per year.

With partial or complete state funding of CDM projects, funds allocated for official development assistance should not be used. Besides, CERs received through CDM projects are subject to a 2% fee, known as a “share of the proceeds”, which is paid to the newly created adaptation fund to help the most vulnerable developing countries adapt to the negative effects of climate change. Another CER fee is used to cover the administrative costs of the CDM. To facilitate the equitable distribution of projects among developing countries, CDM projects that are implemented in the least developed countries are exempt from the fees payable to the adaptation fund and to the administrative costs fund.

The implementation of the CDM is overseen by the Executive Board, which is led by the parties. The Executive Council consists of 10 members, including one representative from each of the five official UN regions (Africa, Asia, Latin America and the Caribbean, Central and Eastern Europe and the OECD), one delegate from small island developing countries, and two representatives from each Annex I country and each non-Annex I country. The Executive Council held its first meeting during the negotiations in Marrakech (November 2001), which marked the launch of the CDM.

Figure  2 details the CDM project cycle. It consists of seven stages: formulation and development of the project, obtaining national consensus, approval and registration of the project, financing of the project, monitoring, verification and certification and issuance of CERs. The first four stages of this cycle are carried out before the project gets underway, while the latter are associated with the operational period of the cycle. The blue boxes indicate the actions of the cycle, while the green ones are participants and reports during the cycle. More detailed information is provided in Annex A of this paper.

Project cycle under the CDM. Source: own elaboration

An extensive literature review on the subject of CDM projects was carried out using the main databases of scientific documents, primarily official United Nations sources, in particular UNFCCC. An additional source was Web of Science for scientific publications on the topic, as well as topics related to the issue under analysis in this research. To the extent possible, aspects relating to the countries under analysis are explicitly highlighted whenever available data or information exists.

We then identify and provide details on CDM projects conducted during the analysed period, which varies from country to country but may be defined as covering 30 years (2006–2036). It is worth noting that there is a limited amount of peer-reviewed literature about this topic.

This research was conducted using a combination of approaches and scientific methods. The abstract-logical method was used to reveal the theoretical aspects of assessing the financial condition and financial stability of projects, in order to determine the main characteristics of the processes and phenomena in this area. The system-structural method was used to analyse the financial condition and identify structural changes.

The financial appraisal process is a standard approach for assessing the economic viability and environmental efficiency of a project (see Fig.  3 ). The financial evaluation of the project is part of the “ in-depth audit” carried out by the investor or as part of the general research process for the proposed investment. The in-depth audit process should also include an evaluation of the ability of the management team to complete the project, an investigation into the technology to be used and ongoing monitoring of the project after funding. Here, however, we focus on the financial evaluation of the process, pre-financing.

Key steps in the financial assessment process. Note: EBITDA, earnings before interest, taxes, depreciation, and amortization; IRR (equity), internal rate of return on equity investment; DSCR, debt service cover ratio. Source: own elaboration

Although detailed financial data, such as monthly cash flow reports, provide the necessary information to evaluate project performance, some different indicators can also be used to summarize the situation. The relative importance of various indicators differs between debt and equity providers, although the basic principles are the same. The indicators commonly used are the following: (1) net present value (NPV) and internal rate of return (IRR); (2) IRR (equity); (3) earnings before interest, taxes, depreciation and amortization (EBITDA); (4) interest rate and (5) debt service cover ratio (DSCR). However, in our research, certain indicators were not used due to a lack of data and/or the fact they were not relevant to the studied projects. Thus, NPV and IRR and IRR (equity) were considered in the analysis, while EBITDA, interest rate and DSCR were not applicable to the projects under study here.

It is important to emphasize the indispensable role of NPV and IRR when it comes to assessing CDM projects in general, and our analysed projects in particular. The aforementioned indicators are needed to ascertain the cost-effectiveness of investment projects. Moreover, they tell us the cost–benefit the project provides in comparison with other financing alternatives for a similar period. Detail on each country is presented in Annex B.

The data used were sourced from the official UNFCCC database, UNdata, the Open SDG Data Hub, MBS, the UN Comtrade database, the National accounts – Analysis of Main Aggregates (AMA) and the UN Digital Library. After a systematic search of the whole set of aforementioned sources, the projects for analysis were hand-selected.

As mentioned above, the main data source is the official UNFCCC database. The CDM page of the UNFCCC website has a “Project Search” tab. On this page, in the public domain, the search tool makes it possible to find specific CDM projects as well as general project types. The UNFCCC database contains all the projects that are at various stages of the registration process, as well as rejected projects.

The search tool has a user-friendly interface, which offers various ways to search for a project: by name, for instance, or using the project classification. Furthermore, all projects are grouped by their size (large or small) and can be at any stage of adoption, which may be indicated. A search can also be conducted by reference number, if known. Another significant advantage of the system is the advanced search function, which enables the user to select or reject projects according to the methodology applied, as well as the host country. It also makes it possible to indicate the date of registration, and the amount of emission reductions. It is worth noting that the database includes a wide range of methodologies used for calculating and submitting projects, where the user can find a large amount of information regarding particular projects, as well as methodological recommendations in general. The register of CDM projects also provides information on the evaluation and status of existing as well as completed projects. Lastly, the UNFCCC database provides information on “Investor Interaction” to study current projects and trends in capital flow through CDM partnerships.

Another essential source is UNdata. This is a search system that provides access to data from UN system databases. UNdata began operations in February 2008 and is the outcome of a partnership among the UN Statistics Division, the Swedish Statistical Office and the Swedish International Development Cooperation Agency. UNdata enables the user to explore and download data from many statistical resources, covering such subjects as energy, the environment, employment, food and agriculture, health, human development, industry, information and communication technologies, national accounts, population, refugees, commerce and tourism. On the official UNdata website, the user can find an enormous amount of statistical information, reports, paperwork, statements and infographics from all UN entities, providing genuine and unique data. The data are divided into datasets, sources and topics, which makes it easier to find the desired information. In addition, there is an “Update Calendar” section, which simplifies the separation of data into dataset, source, organization, last update and next update; this feature proves extremely useful for tracking down the needed information. Also helpful is the glossary, which provides the user with official definitions of key terms.

Furthermore, it is worth highlighting the other databases used in our study: the Open SDG Data Hub, MBS (monthly bulletin of statistics online), the UN Comtrade database, the National accounts – Analysis of Main Aggregates (AMA) and the UN Digital Library.

Results and discussion

The CDM projects are studied here from a financing perspective, but we also take into account the main economic and environmental features. The results of this analysis allow us to discuss both the local and global relevance of these projects.

Types of financing of CDM analysed

From a financing perspective, there are usually three types that can be used to develop CDM projects: grants, loans (debt), and equity. However, most CDM projects will involve a changing combination of two or more sources of financing, due to the large number of necessary investments. While there are some typical models of project financing that were considered in this research, it should be noted that not all of them were applied to the specific projects here, due to certain characteristics of our chosen region. Thus, project financing (in a particular sense of this term), also known as limited recourse financing, corporate financing and leasing financing, was utilized in the projects in question.

Although some less common financing types were not used (e.g., interim financing, microloans, collateral financing), one of the most recent and relevant types was implemented — namely, Energy Service Company/Renewable Energy Service Company (ESCO/RESCO) (see Table ​ Table1) 1 ) — which has proved fundamental to the projects analysed here. Since they are focused on such sectoral scopes as energy industries, RES, energy distribution and energy demand, these projects would not be feasible without ESCO/RESCO. Table ​ Table1 1 below details three key types of financing.

Main types of financing structures

Source: own elaboration.

The selected CDM initiatives by country

Globally, 8026 projects that comply with all of the CDM criteria and rules have been “registered” with the UNFCCC, as of 30 April 2020. Of these projects, 2291 effectively transformed the reported GHG reductions into carbon credits. A total of 1656 million tonnes of CO 2eq were reduced between 2004 and April 2016 and transformed into carbon credits (Mendez-Sayago and Perugache-Rodriguez 2012 ; Mansanet-Bataller et al. 2011 ; Vasa 2012 ; Zhang et al. 2018 ). It is important to highlight that all the registered projects from Eastern Europe are analysed here.

Table ​ Table2 2 lists the identified CDM projects in the countries under analysis. The total number of projects in these countries is quite small. It is worth noting some features of individual countries and their projects. The projects in Moldova have large financial flows and ambitious annual emission reductions, which certainly make these projects cost-effective. Moldova’s projects are mainly related to energy derived from biofuels, or the modernization of the country’s gas system.

Main data of the analysed CDM projects

Considering Montenegro’s projects, there are only two that were highly effective in terms of the ratio of investments to the annual emission reduction, and they required major investments. The first project was carried out in partnership with an Italian company; the second was one of the most expensive projects, in partnership with the UK. Both projects were wind parks. Bosnia and Herzegovina also had two projects, both of which were hydroelectric. As with the Montenegrin projects, the ratio of investments to the annual reduction of CO 2 emissions was fairly high, which made these projects very environmentally cost-effective.

The three Albanian projects were also carried in the field of hydropower. It should be noted that the HPP Ashta project had the greatest environmental cost-effectiveness of all the projects, with a ratio of 3106.27 (ratio of investments/annual reduction of CO 2 ). Most of the Albanian projects were handled in partnership with Austrian energy companies. All projects had fairly high investment inflows, as well as reasonably high annual emission reductions.

It is important to note the ambitious biogas projects, for example, in Moldova and Albania. We should also point out the large, arduous projects in the field of hydropower. Since the region has great potential in the field of hydropower, a substantial number of projects were developed in Bosnia and Herzegovina and Albania. It should be noted that both projects in Bosnia and Herzegovina showed very high cost-effectiveness; these projects naturally require more investments than wind power projects for example. Nevertheless, the average annual reduction in CO 2 emissions is also quite high, which made them more environmentally friendly. This allowed these countries to more actively pursue energy integration policies.

Serbia had the largest number of projects; however, half of them did not provide detailed investment information, which made it challenging to evaluate their profitability. Most were projects in the field of wind energy and only one was in the field of biogas. Moreover, the biogas project was one of the most environmentally effective projects in terms of the environment in general. The main partners with whom these projects were implemented were companies from the UK, Italy and Liechtenstein.

To sum up, the analysis of the projects in Eastern European states is summarized in Fig.  4 below.

Main features of identified CDM projects. Source: own elaboration

All the analysed countries expressed interest in the negotiation process within the UNFCCC and advocate for the adoption of a legally-binding accord to prevent the Earth’s average temperature from rising by more than 2 °C. These countries have also confirmed their targets for emissions reductions by 2030 (Serbia to reduce emissions by 10% by 2030; Montenegro 30% by 2030; Bosnia and Herzegovina 2% by 2030; Albania up to 12% by 2030; Moldova up to 70% by 2030) (Djurovic et al. 2019 ; Udovicki et al. 2018 ; Report of Government of the Republic of Moldova, March 2017 ; Report of the Bosnian Government, April 2019). In the energy balance of these countries, a significant part of primary consumption is already covered by RES, contradicting the environmental Kuznets curve (EKC) hypothesis. The mechanisms of the KP, including the CDM, as well as their growing integration with the EU, has played a decisive role in this process. That said, the analysis of the behaviour of the analysed countries during the implementation of CDM projects in their territory revealed that, within this region, government support varies from country to country. This led to an uneven distribution of projects in the region, and a small number of projects overall, despite the region’s high potential in the field of RES.

The CDM projects analysed undoubtedly make an essential contribution to achieving sustainable development, meaning the projects of the analysed region are aligned with the SDGs (Ugochukwu 2020 ; Usman and Balsalobre-Lorente 2022 ). Since they are almost all projects in the field of RES, they contribute to the achievement of several different SDGs, 4 such as SDG7 (affordable and clean energy) and SDG13 (climate action) (Djurovic et al. 2016 ). Sustainable and renewable energies are key to sustainable development, not only from an environmental perspective but also from an economic and social one. Firstly, because these energy sources allow countries to reduce their dependence on fossil fuels, lowering the risks due to the volatility of prices and quantities caused by possible energy shocks. Secondly, they help to improve the balance of payments of the economy, since they reduce the need for imports of fossil fuels. And thirdly, unlike fossil fuels, they are low-pollution or pollution-free energy sources, helping to reduce the stress on the environment generated by businesses and the residential sector/household consumption of energy. For all these reason, the boost to RES thanks to CDM projects in the developing countries analysed facilitates progress towards sustainable development.

Additionally, if the implementation of CDM projects was accompanied by complementary information and data about the social and economic impacts, it would help to identify the progress made towards a global concept of sustainable development. The analysis carried out shows that the studied projects have undeniably contributed to the countries’ performance in terms of SDG3 (good health and well-being), SDG8 (decent work and economic growth), SDG9 (industry innovation and infrastructure), and SDG17 (partnerships for the goals). After all, one of the aims of the CDM is to provide a cheaper solution for developing countries to achieve their targets.

Following the analysis of the studied projects, the initial purpose of the CDM to function as an effective climate finance tool can clearly be seen in the individual projects (Olsen 2007 ). By analysing the financial data from the projects (where the information was available), the main inference drawn is that all projects, without exception, were cost-effective, long-term and large-scale (in relation to the size of the country’s economy and its energy system). Moreover, they were collaborative, which, in addition to the inflow of investments from Annex 1 countries, helped to accelerate the process of technology transfer. All projects were financially viable and suitable for investment and financing. Each project had a relatively short payback period (within the industry).

Most projects conducted a sensitivity analysis considering various possible scenarios. Within the framework of its sensitivity analysis, each project justified its cost-effectiveness given its inherent uncertainty and risks. It has been shown that the projects under consideration have a relatively low sensitivity, which makes it easier to interpret the economic and environmental indicator of annual emission reductions.

The last finding relates to an assessment of the environmental role of the projects. Each project was under the supervision of a national environmental review, which took into account legislative requirements in the field of environmental impact assessment. Each project (with the exception of three projects in Serbia) conducted an evaluation of the hypothetical damage and benefits, within the framework of the integrated environmental and economic effectiveness analysis.

Conclusions

This research allows us to conclude that, in a short period of time, the CDM acted as a catalyst for a large number of project activities in Eastern Europe. All the selected projects supported decarbonization processes. Without this mechanism, it is difficult to imagine such a result would have been achieved. In spite of the overall progress driven by the CDM, the outcomes have not always been entirely clear or acknowledged by all actors. The benefits in terms of sustainable development (SDGs), technology transfer, additionality of funding and global emission reductions have been called into question, as has the fair distribution of the benefits (the CDM market has been dominated a few non-Annex 1 parties).

The contribution to the sustainable development of host countries was one of the two main objectives of the CDM. It is therefore important to assess the impact of CDM projects in terms of sustainable development. This evaluation constitutes a prerequisite for the acceptance of projects by the Executive Council, but it must be said that the requirements in this area are extremely limited. In fact, to meet the requirements of the Executive Council, it is enough for the host country to certify that the project complies with its sustainable development policy. One might therefore argue that there is no reason to further question the principles and methods which should guide the ex-ante evaluation of CDM projects from the point of view of sustainable development. This would be to ignore the fact that, in the absence of an explicit national policy of sustainable development, host countries may be anxious to verify that the projects submitted to them nevertheless fall within this scope. Moreover, Annex 1 countries may wish to impose additional admissibility criteria on the projects presented to their National Authority, including in matters of local development.

To ensure the success of CDM in the future, it is important to make prompt modifications to governance, market functioning and project scope. Adjustments performed in the short term are best done in the context of a strategic outlook with plainly defined goals. Such changes must be meaningful enough to produce continuity and to rebuild reliance on the UNFCCC’s ability to implement the mechanism. This will be especially challenging in light of developments in the negotiations over the medium term.

It seems essential to improve the governance of the CDM by strengthening the international and national regulations of projects and by aggregating the scales of decision-making and actions, so that real multi-scalar transnational governance — from the global level (CDM Executive Council) down to the local level (places where projects are carried out) — is implemented in a coherent manner. It also crucial to improve the effectiveness of projects, by carrying out ex-post evaluations, following which readjustments could be made.

Despite the shock caused by the SARS-CoV-2 pandemic, nations are still striving to reduce emissions, while overcoming the crisis and developing their economies in a sustainable way. An effective battle against climate change requires much more drastic emission reductions by the world’s top emitters. By drawing on these lessons from the past and involving civil society at the heart of CDM governance, it will surely be possible to produce a robust and adaptive institutional framework.

Annex 1. Project cycle under the CDM. Details

Project design.

The first step in the CDM project cycle is the selection and development of potential projects. The CDM project should be realistic, measurable, and complementary. To establish the additional nature of the project, the emissions associated with it should be compared with the emissions of the most reasonably probable development of the action, which are called baseline conditions. The project participants set these initial conditions using the approved methodology for each specific project. These emission baseline methodologies are being developed following the three approaches from the Marrakesh Accords:

• Existing actual or historical emissions;
• Emissions resulting from the use of technology, which is an economically attractive line of business, taking into account barriers to investment; or
• Average emission standards as a result of similar project activities, which were carried out in the previous five years under similar conditions and which, according to all indicators, are among the 20% most efficient in their category.

National consensus

All countries that wish to participate in the CDM should designate a national CDM body to evaluate and approve projects. This Designated National Authority is also the CDM focal point. Although in the framework of international processes, general guidelines are developed to determine the baseline conditions and the additional nature of the project activity, each developing country is responsible for developing national criteria for agreement on the project. Together with the investor, the host country should prepare the design and technical documentation with the following structure:

• General description of the project;
• Description of the methodology for determining the baseline;
• Schedule and crediting period;
• Methodology and monitoring plan;
• Calculation of GHG emissions by sources;
• Conclusion on environmental impact;
• Comments from stakeholders.

The designated national CDM authority issues the necessary conclusions that the government voluntarily participates in the project and confirms that the activities included in the project help the host country achieve sustainable development.

Approval and registration

The designated operational entity (DOE) reviews the design documentation and, after receiving feedback and comments from the public, decides whether to approve it. These operating bodies will typically be private companies, such as audit and accounting firms, advisory firms or legal firms, which can independently and reliably estimate emission reductions. If the project is approved, the operating body sends the design and technical documentation to the Executive Board for official registration.

Monitoring, verification, and certification

The carbon component of an emission reduction project cannot have real value in the international carbon market without going through a verification process that is specifically designed to quantify and verify the carbon component. Thus, when the project begins, its participants prepare a monitoring report that includes an assessment of the received certified emission reduction (CER) value and submit it to the operating body for verification. Verification is an independent ex-post assessment of the results of the emission reduction monitoring by the operating authority. The operating entity must ensure that the received CER volumes comply with the guidelines and conditions agreed upon during the initial approval of the project. After a detailed analysis, the operating entity issues a verification report and then certifies the CER volume obtained from the CDM project.

Certification is a piece of documentary evidence that the implementation of the project has resulted in proven emission reductions. Also, the certification report is an application for CERs. If a project participant or three members of the Executive Board do not request a review within 15 days, the Executive Board instructs the CDM Registry to issue CERs.

National benefit of CDM projects:

From the perspective of developing countries, the CDM can (UNCTAD 2003):

• Raise capital for projects that will help in the development of the economy while reducing carbon emissions;
• Allow and encourage the active participation of the public and private sectors;
• Become a tool for technology transfer if investments are directed to projects to replace obsolete and inefficient fossil fuel technologies or create new industries using environmentally sustainable technologies; and,
• Help to identify investment priorities for projects that meet the goals of sustainable development.

In particular, the CDM can contribute to the achievement of the sustainable development goals of the host countries by:

• Transfer of technology and financial resources;
• Sustainable energy production methods;
• Improving energy efficiency and energy savings;
• Poverty reduction through the creation of sources of income and new jobs;
• Positive environmental effects at the local level.

Annex 2. CDM projects by countries

The republic of albania.

The Republic of Albania joined the United Nations Framework Convention on Climate Change (UNFCCC) in 1995. As a non-Annex I Party to the Convention, Albania achieved and offered its First National Communication at COP 8 in October 2002. The country completed the initial action in the process of the improvement of the Second National Communication by concluding the self-assessment activity and by creating the synthesis report on stocktaking of climate change activities. As a follow-up to the stocktaking exercise, Albania commenced the UNDP/GEF funded project for the preparation of the Second National Communication in March 2005. Albania ratified the KP in December 2004. The Designated National Authority was placed within the Climate Change Unit of the Ministry of Environment, Forests and Water Administration. Governmental rules and procedures for JI are not yet in place.

There is great potential for GHG remission, notably in the Albanian hydro sector. Apart from the 11 hydropower plants (HPPs) identified by Italy, there are more hydropower projects that could be used for CDM projects in the future, although the projects identified by Italy are the most flexible ones so far. According to Albania’s Second National Communication to the UNFCCC, total GHG emissions in 2005 reached 8.5 m t CO 2e /year. Without extra measures to cut emissions, the GHG level was forecast to reach 37 m t CO 2e in 2020. Sectors with the highest emission reduction potential are the energy sector (400,000 t CO 2 /year), renewable energies (1.35 m t CO 2 /year), waste sector (130,000 t CO 2 /year), and LULUCF (620,000 t CO 2 /year). In sum, there are potential emission reductions of 2.5 m t CO 2 /year, 75% of which is accounted for by hydropower and forestry.

These days, there are various nations and foreign organizations involved in CDM projects and capability-building in Albania (Frasheri, 2013). Contracts were signed with Denmark and Italy. Key proposed deliverables of collaboration with Italy are the development of a set of rules and methods for CDM endorsement and DNA functioning, the advancement of standard baselines for energy and forestry sectors, and a national strategy for placing Albania in the carbon market. Italy has already supported the development of a DNA report that covers an analysis of existing institutional and juridical frameworks in the field of CDM. With Italian assistance, a local unit was founded in Tirana to aid the overall CDM activity in Albania (Austrian Development Agency, 2015). Italy also developed a portfolio of possible CDM projects (PIN status) in the field of energy efficiency and RES. With the Italian association, 11 projects have been developed in different sectors (3 waste management projects, 2 RES projects, 5 energy efficiency/fuel switch projects, and 1 afforestation project). The presentation of the CDM project portfolio took place in Milan, Italy, in May 2007. The Albanian Ministry for the Environment announced a call for tender for the feasibility investigations in September 2007.

The Austrian Development Assistance is also included in the CDM potential framework in Albania. It concentrates mostly on the same concerns as the Italian assistance. Austria has developed a report on CDM in the Albanian energy sector. There is greater focus on Austrian private companies, particularly for the development of the CDM projects in the field of construction and reconstruction of small hydropower plants. Moreover, as part of the UNDP/Austrian Government project “Capacity building to access carbon finance in Albania”, which was officially inaugurated in June 2007, a pipeline is currently being finished. No data about specific projects are currently available. The World Bank Carbon Fund has set up at least one project in Albania. The German development bank has also carried out an initial evaluation of a possible CDM project aimed at carbon sequestration through the natural restoration of forests around the Prespa Lake. Apart from the CDM activities, the UNDP and KfW are also active in the promotion of energy efficiency in Albania.

There is still a shortage of public controls and procedures for CDM project approval in Albania. The technological and commercial capability to develop PINs and PDDs is low. There is only limited information on the benefits of carbon finance to the economics of investment (IRR). Project owners need national data for the evaluation of baseline emissions. Efforts to ensure inclusion in carbon finance have emerged comparatively late compared to other countries, meaning that investors have shown insufficient interest in the country in the past.

Bosnia and Herzegovina

Bosnia and Herzegovina has been a non-Annex I Party to the UNFCCC since December 2000 and ratified the KP in July 2007. The country has completely committed to satisfying the conditions of Art.4 and Art.12 of the Convention. The National Focal Point within the Ministry of Physical Planning, Civil Engineering and Ecology has made meaningful attempts to develop the Initial National Communication. It will also serve as the Designated National Authority. The CDM Board, however, is yet to be established.

Bosnia and Herzegovina’s energy sector is characterized by hydropower (Kaštelan-Macan et al. 2007) and coal, with total installed capacity of 1900 MW. The country is currently promoting an energy strategy that centres on HPPs, particularly on SHPPs. Bosnia and Herzegovina have implemented some legal authorizations regarding HPPs to encourage the growth of this type of project. Nevertheless, the known CDM projects are still at a very early stage. At the CTI-Investors Forum, Bosnia and Herzegovina presented two small-scale hydropower projects.

In 2003, Austria approved a Memorandum of Understanding (MoU) with Bosnia and Herzegovina and is involved in technical assistance for environmental projects. The World Bank is currently carrying supporting the development of the “Energy Study in BIH”, which will give recommendations for improving and sustaining the energy sector and assist Bosnia and Herzegovina with the founding of a national energy strategy.

So far, relatively few projects have been developed. However, interest in international cooperation and further project development was expressed at the CTI-Investors Forum. Capacity building among potential project owners is necessary to further develop Bosnia and Herzegovina’s project potential, and the founding of the DNA will be the crucial prerequisite for CDM activity.

The Republic of Moldova

The Republic of Moldova ratified the UNFCCC in 1995 and the KP in 2003. The Moldovan DNA belongs to the State Hydrometeorological Service of the Ministry of Ecology and Natural Resources. CDM potential in Moldova has been identified, notably in the RES sector. Three CDM projects were enrolled in 2006, presented in association with the International Bank for Reconstruction and Development as the trustee of the Community Development Carbon Fund (CDCF) and the Netherlands.

The EU encouraged the improvement of CDM projects (Klepper and Peterson 2006) in the Republic of Moldova in the framework of a TACIS programme. Within that programme, some possible CDM projects were carried out in partnership with the State Hydrometeorological Service. One of these projects, a project on biogas from poultry farms, was presented at the CTI-Investors Forum. To date, the Republic of Moldova has approved an MoU with Denmark. CDM project potential in Moldova is insufficient but additional projects could be identified in the bioenergy field. The general investment climate seems to be advantageous, and investors at the CTI-Investors Forum appeared to be interested in the country’s projects.

The confirmation of a national cross-sectoral Climate Change Strategy and Action Plan will help Serbia to achieve a complete national strategic and legal framework for climate action (alleviation and accommodation) in agreement with international commitments and obligations on GHG mitigation (Paris Agreement and EU accession). The Republic of Serbia has been part of the UNFCCC since 2001 and the KP since 2008. The Ministry of Environmental Protection (MEP) is the national focal point for the implementation of the Convention and the Protocol.

To receive the Letter of Approval (LoA) from the Serbian government, the project owner should promote the project according to the special conditions set by the MEP, including the full package of documents along with the PDD. The project owner should present the extended project with the Determination Report to the MEP. If necessary, the MEP conducts an expert evaluation of the project to assess its compliance with MEP requirements. It evaluates the project and accompanying documents presented by the project owner within a month and, if the assessment is positive, issues an LoA. In the event of rejection, the ministry notifies the project owner in writing within a month, specifying the reasons for rejection. Regarding the general investment climate, since 2002, Serbia has ratified new legislation, regulations and procedures intended to improve the investment climate in its economy in general and the energy sector in particular. The Government’s attempts to improve the business environment and the investment climate in the country are beginning to bear fruit. Despite the political risks, investment has grown by almost 16% and is 4.5 times greater than 2002 levels, while foreign direct investment is currently at its highest level since 1991.

Serbia has enormous potential for reducing GHG (Komarov et al. 2012), in particular by improving energy efficiency and employing renewable energies. Serbia’s key energy policy responsibilities and preferences are established in the Energy Strategy for the Period until 2030, adopted by the Cabinet of Ministers in March 2006 (Dunjic et al. 2016). The Strategy starts out from the understanding that Serbia has limited conventional energy resources and thus has to rely on imports, and that it additionally suffers a lack of diversification of energy imports. For these reasons, the strategy highlights the value of conscious use of energy, an increase in domestic energy production, and a shift to alternative energy sources. Consequently, the Serbian government usually welcomes the development of CDM projects to realize this potential. The Energy Strategy anticipates the mass construction of wind power plants, which in turn are suitable for the CDM. Particular attention is paid to alternative energy sources, RES and biomass projects. The programme also allows for mass reconstruction of out-dated thermal power plants and combined heat and power plants. However, the strategy does not predict any financing and approval of programmes for specific projects. In short, therefore, it can be said that the Energy Strategy is currently only at the planning stage, without any real substance, and will not limit the opportunities to accomplish CDM projects in Serbia. For several potential CDM-project types, there are other programmes and laws adopted, which could influence the additionality issue of CDM projects. Nevertheless, in practice, the programmes have not provided financing for specific projects so far.

For the time being, Serbia’s CDM project portfolio consists of seven projects. The projects were identified in cooperation with foreign carbon funds and governments, e.g. United Kingdom of Great Britain and Northern Ireland, Liechtenstein and Italy. A Liechtenstein-Serbian CDM-Portfolio had been developed with four projects.

Serbia’s main requirements are the latest technology, highly professional labourers and technological support for the extension of standards and the creation of an internal market. Further foreign investment is needed to extend CDM projects and to identify potential projects. While Serbia has huge project potential, the framework for CDM projects in the country remains unproven, and the general investment climate is still difficult. Serbian authorities frequently seek to encourage foreign investment, and the wider public is well disposed to foreign investment. There are few restrictions on foreign ownership. However, both domestic and foreign investors still face challenges at a realistic level. These do not exactly relate to the issue of foreign ownership or investment, but rather to administrative hurdles that are arbitrarily enforced, or random delays.

Montenegro became part of the UNFCCC on 27 January 2007 as a non-Annex 1 country. It ratified the KP in 2007. Since EU membership is a priority for the country, the alignment of Montenegrin law with the relevant parts of the acquis communautaire on the environment and climate change is an essential element of this transaction (Government of Montenegro 2017 ).

The modification to the Law on Environment in March 2007 and the Governmental decision of 1 June 2006 resulted in the establishment of the DNA. Montenegro’s DNA now resides within the Ministry of Sustainable Development and Tourism. The CDM procedures in Montenegro are in place. They specify that the letter of endorsement must be issued within 15 days after the submission of the PIN. The PDD must be developed or accepted no later than 30 days after submission (Ministry of Sustainable Development and Tourism of Montenegro, 2017).

Montenegro has one of the lowest levels of GHG emissions per unit of GDP in Central and Eastern Europe (Djurovic, 2017 ). The energy sector accounts for about 70% of total emissions. It is dominated by large hydropower and coal-based plants. The high carbon intensity makes Montenegro attractive for CDM. CDM projects are primarily feasible in the field of energy efficiency and RES. Montenegro currently has two projects considered for CDM: both of them are wind power plants. One project has been developed with Italy on a bilateral basis, and the other with the United Kingdom of Great Britain and Northern Ireland.

Table ​ Table3 3

Entity list of the project “Moldova Biomass Heating in Rural Communities 2”

Table ​ Table4 4

Entity List of the project “Moldova Energy conservation and GHG emissions reduction”

Annex 4 Methodology used (All methodologies approved and elaborated by the UNFCCC’s CDM)

• Moldova Biomass Heating in Rural Communities 2 – AMS-II.E. ver. 6 – Energy efficiency and fuel switching measures for building; AMS-III.B. ver. 6 – Switching fossil fuels
• Moldova Energy conservation and greenhouse gases emissions reduction— AMS-II.E. ver. 6 – Energy efficiency and fuel switching measures for building; AMS-III.B. ver. 6 – Switching fossil fuels
• Reducing gas leakages in Moldovagaz distribution network, Republic of Moldova – AM0023 ver.4—Leak detection and repair in gas production, processing, transmission, storage and distribution systems and in refinery facilities
• Moldova Community Forestry Development Project – AR-AM0002 ver.3—Restoration of degraded lands through afforestation/reforestation
• Hydropower Plant Otilovici— AMS-I.D. ver. 17 – Grid-connected renewable electricity generation
• b) Mozura Wind Farm— ACM0002 ver. 12—Consolidated baseline methodology for grid-connected electricity generation from renewable sources
• Amitea Small Hydro Project— AMS-I.D. ver. 17 – Grid-connected renewable electricity generation
• Hydro Power Plant Ulog— ACM0002 ver. 13—Consolidated baseline methodology for grid-connected electricity generation from renewable sources
• HPP Ashta— ACM0002 ver. 12—Consolidated baseline methodology for grid-connected electricity generation from renewable sources
• b) Devoll Hydropower (DHP)— ACM0002 ver. 12—Consolidated baseline methodology for grid-connected electricity generation from renewable sources
• c) Hydropower station Murdhari 1&2 (Hydroelectric Power Station Murdhari in Albania)— AMS-I.D. ver. 17 – Grid-connected renewable electricity generation
• Wind Farm Cibuk 1— ACM0002 ver. 12—Consolidated baseline methodology for grid-connected electricity generation from renewable sources
• Wind Farm Plandiste 1— ACM0002 ver. 12—Consolidated baseline methodology for grid-connected electricity generation from renewable sources
• Wind Farm Kosava I + II— ACM0002 ver. 12—Consolidated baseline methodology for grid-connected electricity generation from renewable sources
• Wind Farm Kladovo 1- ACM0002 ver. 12—Consolidated baseline methodology for grid-connected electricity generation from renewable sources
• LFG Recovery and Electricity Production at the Bubanj Landfill Site, Nis, Serbia— AMS-III.G. ver. 7—Landfill methane recovery; AMS-I.D. ver. 17 – Grid-connected renewable electricity generation
• Alibunar Biogas plant construction project— AMS-III.AO.—Methane recovery through controlled anaerobic digestion; AMS-I.D. ver. 17 – Grid-connected renewable electricity generation

Table ​ Table5 5

Categories of methodologies and their characteristics

Table ​ Table6 6

Parties included in the financing of the CDM project

Costs play a major role in the study of our projects, since in addition to the costs that the project incurs regardless of whether it will be registered as a CDM or not, some specific costs are associated with different stages of the CDM project cycle, as shown in Table ​ Table7 7 below.

CDM-specific project costs

1 US $ 0.10 / tonne of CERs for the first 15,000 CERs per year; and US $ 0.20 / tonne of CERs for CERs over 15,000 per year (maximum US $ 350,000). The minimum shown here is calculated as 15,000 CERs / year for one lending period of 7 years.

2As for full-scale projects, if the total annual reduction in emissions is below 15,000 tonnes of CO 2 eq., the registration fee is not paid. Maximum estimated 25,000 CERs / year for 7 years of the loan period.

Table ​ Table8 8

General types of financing CDM projects

Table ​ Table9 9

Risks during various phases of the implementation of CDM projects

Author contribution

JMC conceived the idea and participated in writing the paper. SN participated in writing the paper and processed data. RRC participated in writing the paper. All authors participated in Conclusions section.

Open Access funding provided thanks to the CRUE-CSIC agreement with Springer Nature. This work was funded by the following institutions: (1) the Andalusian Regional Government (project SEJ-132), (2) the “Cátedra de Economía de la Energía y del Medio Ambiente” sponsored by Red Eléctrica de España at the University of Seville,” and (3) the Spanish “Ministerio de Ciencia, Innovación y Universidades” which provided financial support for the research project (RTI2018-096725-B-I00), (4) the Departamento de Análisis Económico y Economía Política (Department of Economic Analysis and Political Economy) at the University of Seville, and the (5) Universidad Autónoma de Chile (Chile).

Data availability

Declarations.

No human data involved.

The authors declare no competing interests.

1 The CDM, which is defined in Article 12 of the KP, seeks to help developing countries to achieve sustainable development by supporting environmentally-friendly investments from the government and the private sector of industrialized countries. The CDM financing should help developing countries meet a range of economic, social, environmental and sustainable development goals, such as ensuring clean air and water, improving land use, rural development, increased employment, reduction of poverty and, in many cases, reduction of dependence on imported fossil fuels (UN 2011; UNFCCC 2009).

2 SDG7 calls for efforts to ensure access to affordable, reliable, sustainable and modern energy for all. SDG13 calls for urgent action to combat climate change and its impacts.

3 An exhaustive list of CDM projects analysed in Li and Lin (2021) did not pay specific attention to those located in Eastern Europe.

4 A recent report on SDG performance focused on Italy is provided by D’Adamo et al. (2021).

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The Clean Development Mechanism: too flexible to produce sustainable development benefits?

Working paper 2.

The Clean Development Mechanism (CDM) of the Kyoto Protocol has a dual objective: to encourage low-cost emission reduction and to promote sustainable development in the host countries of CDM projects.

The CDM has by and large delivered on the first objective but arguably not on the second.

We assess quantitatively the form and prevalence of co-benefits in CDM projects.

Adopting a broad definition of sustainable development, the project design documents of 409 projects (10 per cent of the October 2008 project pipeline) were searched for keyword indicators of contributions to economic growth, physical, social and natural capital.

Economic growth co-benefits, in the form of employment, constitute the main project co-benefit, with 82 per cent of projects claiming to contribute to employment.

Under a stricter sustainable development definition, projects contribute principally to social capital, primarily training (67 per cent), with physical and natural capital gains less prominent.

End-of-pipe projects are found to have lower co-benefits than renewable energy or forestry projects in particular.

Contrary to common belief, small-scale projects do not appear to provide higher co-benefits than large-scale projects.

Charlene Watson and Samuel Fankhauser

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The Clean Development Mechanism: An assessment of current practice and future approaches for policy

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T1 - The Clean Development Mechanism

T2 - An assessment of current practice and future approaches for policy

AU - Boyd, Emily

AU - Hultman, Nathan

AU - Roberts, Timmons

AU - Corbera, Esteve

AU - Ebeling, Johannes

PY - 2007/10

Y1 - 2007/10

M3 - Working paper

T3 - Tyndall Working Paper

BT - The Clean Development Mechanism

PB - Tyndall Centre for Climate Change Research

CY - United Kingdom

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The Clean Development Mechanism : An assessment of current practice and future approaches for policy

• Nathan Hultman
• Timmons Roberts
• Esteve Corbera
• Johannes Ebeling

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Tyndall Centre for Climate Change Research

How to effectively promote the transformation of ecological and environmental scientific and technological achievements? A case study from China

• Original Paper
• Published: 25 May 2024

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• Lingling Li 1 ,
• Weiqi Chen 1 ,
• Bingjie Song 2 &
• Caixian Cui 1  

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As an important driving force to improve the quality of ecological environment, there is a problem of poor transformation of ecological and environmental of scientific and technological (S&T) achievements. Based on the quasi-case study method, this paper analyzes the judicial judgment documents for the transformation of ecological and environmental S&T achievements and finds that the regulatory boundary of the transformation mechanism is not clear in terms of the type of achievements, ownership of achievements and distribution of benefits of achievements. As a quasi-public product, the transformation of ecological and environmental S&T achievements has distinct characteristics of incomplete contract and leads to the problems of insufficient incentive and transformation difficulty. The research results show that the deep reasons for the lack of incentive and transformation difficulty of ecological and environmental S&T achievements are weak incentive caused by unclear definition of property rights, mismatch between supply and demand caused by the dual goal of outcome financing mechanism and unstable cooperation caused by the conflict of multi-subject interest distribution orientation. The optimal allocation of residual control rights is the key point to crack the bottleneck of the transformation of ecological and environmental S&T achievements. Due to the different role positioning and interest considerations of each subject in the transformation, the allocation of residual control rights is also different. The industrialization of ecological and environmental S&T achievements should be taken as the goal, focusing on the allocation of residual control rights of the government to drive supply and demand, the residual control rights of the technology supplier to divide the ownership of the achievements and the residual control rights of the technology demand side to release the market value of the achievements, so as to maximize the protection and promotion of ecological and environmental S&T achievements transformation.

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This work is supported by National Key R&D Program of China (Grant Number: 2021YFD1900700).

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Lingling Li, Weiqi Chen & Caixian Cui

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L.L., B.J. and W.C. helped in conceptualization, writing—original draft preparation and validation; L.L., W.C. and C.C. were involved in methodology, formal analysis, investigation; L.L. and B.J. helped in resources; L.L. and W.C. curated the data and writing—review and editing. All authors have read and agreed to the published version of the manuscript.

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Li, L., Chen, W., Song, B. et al. How to effectively promote the transformation of ecological and environmental scientific and technological achievements? A case study from China. Clean Techn Environ Policy (2024). https://doi.org/10.1007/s10098-024-02882-3

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Received : 09 December 2023

Accepted : 06 May 2024

Published : 25 May 2024

DOI : https://doi.org/10.1007/s10098-024-02882-3

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