Clean Development Mechanism (CDM)

Climate protection projects under the Clean Development Mechanism – CDM are among the so-called flexible mechanisms and are based on article 12 of the Kyoto Protocol. They give industrialized countries and their enterprises the option – in addition to actual emissions trading – of fulfilling part of their reduction commitment via the financing and realization of CDM climate protection projects in less developed countries. Host countries for CDM projects may only be counties that have ratified the Kyoto Protocol but are not included as industrialized countries in Annex B of the Kyoto Protocol.

In addition to the actual intention of mitigating greenhouse gases, CDM projects also serve the sustainable development of host countries as a positive side effect. Projects are monitored by the CDM Executive Board (EB), which – after successful conclusion of a CDM project – is also responsible for the issue of the corresponding emission allowances – in this case, Certified Emission Reductions (CERs).

Eligibility requirements for CDM projects

Both the investor country and the host country must fulfill certain criteria to be eligible for CDM projects. While the hosting developing country need only have ratified the Kyoto Protocol, the criteria for the investor country and that country's enterprises are considerably more extensive. The following points must be fulfilled:

1. The State is a Party to the Kyoto Protocol.
2. Its assigned amount pursuant to article 3, paragraphs 7 and 8 has been calculated and recorded in accordance with decision 13/CMP.1.
3. It has in place a national system for the estimation of anthropogenic emissions by sources and anthropogenic removals by sinks of all greenhouse gases not controlled by the Montreal Protocol, in accordance with article 5 of the Kyoto Protocol.
4. It has in place a national registry in accordance with article 7, paragraph 4 of the Kyoto Protocol.
5. It has submitted annually the most recent required inventory of greenhouse gases, in accordance with article 5, paragraph 2 and article 7, paragraph 1 of the Kyoto Protocol.
6. It submits the supplementary information on assigned amount in accordance with article 7, paragraph 1 of the Kyoto Protocol.

A CDM project may only be carried out if the host country gives its approval and confirms that the project serves sustainable development. Liechtenstein aims to support very high-quality and valuable projects which, in addition to sustainability, also result in additional positive effects for the host country. Accordingly, adverse effects on the local environment must be low, and the population must be extensively involved in the project planning, in order to ensure that the project promotes public health, equality, and the creation of jobs with a fair incomes (such as according to the Gold Standard).

To register a project, the project documentation, the validation report, and the consent of the host country must be submitted to the CDM Executive Board. The competent authority for implementation and supervision of CDM projects is the Designated National Authority (DNA); in Liechtenstein, this function is fulfilled by the Office of Environmental Protection.

Figure 2 shows the schematic end of a CDM project.