The Clean Development Mechanism and the poverty issue.

• Author: Blevin, Marie

1. INTRODUCTION II. THE CDM AND THE POVERTY ISSUE: A FAILURE? A. CDM and the Poorest Countries 1. The Unbalanced Distribution of the CDM Projects." Major Host Countries 2. The CDM Projects In the Least Developed Countries, Small Island Developing States, and Africa B. CDM and the Poorest Populations 1. Scope of the CDM: The Poverty Eradication Objective Is Not Taken Into Account 2. Case Study: CDM Projects In India 3. The Institutional Limits Causing the Inefficiency of the CDM Projects Regarding the Poverty Alleviation Objective a. The Absence of Control and Oversight of the Executive Board over the Relevance of the Project Regarding Sustainable Development and Poverty b. The Lack of Incentive to Implement CDM Projects In the Most Vulnerable Countries III. RETHINKING THE CDM TO TAKE INTO ACCOUNT THE POVERTY ISSUE A. Different Modifications to the CDM System 1. Stage of Assessment a. Giving the EB Power of Oversight over the Sustainable Development Aspect of the CDM Projects and Giving It Power of Sanction b. Lowering the "Additionality" Test c. Changing the Criteria of Sustainable Development to a Broader, More Controllable Criterion-Analysis of the "Gold Standard" Proposal 2. Stage of Implementation a. Constraining the Issuance of CER b. Applying a Coelticient to CERs Issued from Certain Projects (Country or Industry) that Favor the Poorest Populations B. How to Redesign the CDM to Tackle Poverty? I. INTRODUCTION

   The Clean Development Mechanism (CDM) was introduced late in the Kyoto negotiations, and was in fact referred to as the 'Kyoto Surprise.' (1) It is one of the three market-based mechanisms created by the Kyoto Protocol in 1997 to contribute to reducing emissions of greenhouse gases (GHGs), and the only one involving developing countries. (1) Defined at Article 12 of the Kyoto Protocol, the objective of the CDM "shall be to assist Parties not included in Annex I in achieving sustainable development and in contributing to the ultimate objective of the Convention, and to assist Parties included in Annex I in achieving compliance with their quantified emission limitation and reduction commitments under Article 3." (3) A CDM project must be approved by the host country and the investor country's Designated National Authorities (DNA), (4) and registered with the Executive Board (EB) (5) established by the United Nations Framework Convention on Climate Change (UNFCCC). (6) The CDM project helps reduce GHG emissions in the host country by enabling the developed country to meet its obligation through this flexible means and by allowing the creation of Certified Emissions Reductions (CERs), which are carbon credits that can be sold and traded on the developed countries' carbon markets. (7) The registration of the project and the issuance of CERs are overseen by the EB, with the objective of "ensuring [CDM] environmental integrity." (8)

   The two main goals of this mechanism are one, to help Annex I Countries meet their GHG emissions reduction objective, and two, to promote sustainable development in the Non-Annex I Countries where the projects are implemented. (9) Non-Annex I Countries range from fast growing economies--Brazil, China, India--to Least Developed Countries (LDCs) and Small Island Developing States (SIDS) with weaker economies and infrastructure. (10) The CDM is thus seen as a tool to limit climate change effects and to improve the situation in the developing countries, through capacity building, infrastructure, and technology transfer. (11)

   Eradication of extreme poverty and hunger is the first goal set by the United Nations members as part of the Millennium Development Goals. (12) A way to achieve that goal is to "[s]upport research and development in yield-enhancing agricultural and climate change technologies." (13) The Conference of the Parties acknowledged the link between climate change, sustainable development, and poverty eradication in 2002 in the Delhi Ministerial Declaration on Climate Change and Sustainable Development, in which the Conference called for "energy policies [that] are supportive to developing countries' efforts to eradicate poverty." (14) The United Nations Development Programme (UNDP) also recognized that theoretically, the CDM could be used as a tool to alleviate poverty. (15) Investors bring finance and technology to developing countries, allowing efficient and innovative measures to enhance the quality of life of the population, while reducing GHG emissions in that country. (16)

   Out of the two goals of the CDM, the current system primarily focuses on the first objective, GHG emissions reduction, without realizing the possibilities for poverty eradication. This is favored by the fact that the host country alone, through its DNA, can assess whether the project achieves sustainable development. (17) Host countries have therefore no specific incentives to accept projects with a greater effect on sustainable development over projects carrying a high reduction of GHGs, but with an insignificant impact on sustainable development and poverty alleviation. A study conducted in 2007 about the CDM and sustainable development concluded that "left to market forces, the CDM does not significantly contribute to sustainable development." (18)

   The first CDM project was registered in 2005, (19) and since then, more than 5,600 projects have been carried out, registered, or are currently in the pipeline. (20) The success of this new mechanism is obvious; it has attracted investors in many developing countries and has helped transfer to Non-Annex I Countries the technology needed to reduce GHG emissions. (21) However, questions remain. What has been, and currently is, the impact of the CDM on the poverty issue? Do the CDM projects foster sustainable development and improve standards of living in the host countries, in terms of quality of air, water, and access to natural resources or employment? How do impoverished populations really benefit from the CDM project revenue? A 2007 review of the first sixteen registered CDM projects found that less than one percent of the GHG reductions achieved through these projects had a significant impact on sustainable development. (22) An Ad Hoc Working Group on Further Commitments for Annex I Parties under the Kyoto Protocol, in preparation of documents for further negotiations post-Copenhagen, sought to promote co-benefits of the CDM projects and explicitly stated that one of these co-benefits should be "poverty eradication." (23) Climate change related mechanisms could play an important role to alleviate poverty, but so far, the poverty eradication goal has been left aside.

   In the first Part of the analysis, this Article establishes that the implementation of CDM projects has been inadequate. The Article points to the reasons that limit a more effective implementation of the CDM in poor countries, especially the LDCs, SIDS, and Africa. The second Part summarizes and assesses the proposals made by different states and organizations to better implement the CDMs, as well "as envisions other solutions that would better address the poverty issue.

2. THE CDM AND THE POVERTY ISSUE: A FAILURE?

   The CDM was created to benefit both developed and developing countries. It enables all Non-Annex I Countries to host a CDM project and benefit from its revenue. (24) Unfortunately, only a few countries have benefited from the CDM. (25) First, this leads to questions of the effectiveness of the CDM on eradicating poverty in the poorest countries. Second, it raises questions about whether in fast growing developing countries or in the most vulnerable countries, the CDM projects truly benefit the poorest populations and help enhance their lives, which is likely the core issue to evaluate.

   1. CDM and the Poorest Countries

      1. The Unbalanced Distribution of the CDM Projects: Major Host Countries

         The inequity in the regional distribution of the CDM projects is a recognized fact: one of the mandates of the EB is indeed to report to the Conference of the Parties serving as the Meeting of the Parties (COP/MOP) about the geographical distribution of the CDM project activities, identifying the barriers to a more equitable distribution. (26) To understand the repartition of the CDM projects worldwide, Table 1 below shows the evolution, from 2004 to 2009, of the CDM projects in the pipeline in the biggest four host countries: Brazil, China, India, and Mexico.

         [TABLE 1 OMITTED] (27)

         The implementation of the CDM projects reveals an unequal focus on some countries. As of 2004, as indicated in Table 1, Mexico, India, China, and Brazil represented about 50% of the CDM projects in the pipeline. (28) Except for a decrease in 2004-2005, the number of CDM projects in the pipeline in these host countries has been constant and fluctuates between 65% and 85% of all projects. (29) Concerning the registered projects, as of March 2010 Brazil, South Africa, India, China, and Mexico account for about three quarters of all projects, (30) while other African countries account for less than 2% of the aggregate number of registered projects, with thirty-eight projects as of the beginning of 2010. (31) This data demonstrates that the CDM projects, whether already registered or still in the pipeline, are principally implemented in a small number of countries. The distribution of the CDM projects is therefore clearly unequal, with these five countries hosting more than 2,250 projects. (32)

         According to a list published by the World Bank, in 2010 China's Gross Domestic Product (GDP) ranks second worldwide, Brazil ranks seventh, India ninth, Mexico thirteenth, and South Africa twenty-eighth. (33) The majority of CDM projects are therefore implemented in countries with a high GDP, whereas only a quarter of these projects are distributed among the rest of the Non-Annex I Countries. (34) A high GDP does not necessarily mean that the population of the country does not live in poverty. For example...