Prepared for the OECD Climate Forum, this paper addresses the two key institutional dimensions of the CDM: Design of the regulatory framework and design of the implementation models.

Executive Summary

The international climate change negotiations over how the Clean Development Mechanism (CDM) should operate, could become stuck over the question of how the CDM will be structured. A review of Parties' submissions reveals three clear alternatives for the CDM’s core structure.... typically described as bilateral, multilateral, or unilateral. Each model is distinct in important ways and each will best fit the needs of some, but not all, of the Parties and other stakeholders. Thus it is not surprising that some Parties advocate the use of only one approach, which best serves its particular national circumstances. This paper examines the characteristics of different design options, and describes how a more flexible approach, termed an “open architecture” CDM, might operate. Such an approach would allow elements of different designs to complement one another and allow the CDM to deliver a broader set of climate and sustainable development benefits. The authors suggest that this more flexible approach can reconcile apparently conflicting visions of the basic CDM structure, and consequently, facilitate consensus.

Regardless of whether a CDM project is implemented through a bilateral, multilateral or unilateral approach, any project must be subject to a common regulatory framework. Project validation, registration, verification and certification make up this basic regulatory process. A critical and overarching component of this framework is an accreditation process for entities that will validate projects and verify emission reductions. The key institutions involved in this regulatory framework are the Conference of the Parties serving as the meeting of the Parties to the Kyoto Protocol (COP/MOP), the Executive Board of the CDM, accredited operational entities, national CDM offices, and project operators. Determining the respective roles of these institutions, which should be crafted to minimise bias and conflicts of interest, will be a major challenge to developing a CDM regulatory framework that simultaneously promotes environment integrity, transparency and investor confidence. Decisions must balance the need for regulatory oversight by independent and international bodies, with the need to minimise bureaucracy and transaction costs by streamlining procedures.