Synopsis

Explores the question of whether industrialized countries should be allowed to use their development assistance funds (aid) to directly finance Clean Development Mechanism (CDM) projects.

Executive Summary

This Climate Note explores the question of whether industrialized countries should be allowed to use their development assistance funds (aid) to directly finance the Clean Development Mechanism (CDM) projects.

After examining the arguments in favor of and against this idea, the paper recommends that CDM rules should prohibit aid-funded credit-earning projects and leave capital investments in the CDM to the private sector.

At the same time, in developing countries that make the CDM a priority, aid could be used for human and institutional capacity development in both the public and private sectors, focused on creating circumstances conducive to attracting CDM projects.