Although many people criticize the ability of corporations or countries to "offset" their emissions by paying for clean energy projects in developing countries, there are now 6000 such projects around the world.
Under the Kyoto Protocol’s Clean Development Mechanism (CDM), emission-reduction projects in developing countries – such as conserving high priority forests or developing clean energy projects – apply for certified emission reduction credits, each equivalent to one ton of carbon.
If countries can’t meet their carbon reduction targets by cutting emissions alone, they can offset part of that by investing in these projects.
"This mechanism stimulates sustainable development and emission reductions, while giving industrialized countries some flexibility in how they meet their emission reduction limitation targets," says the United Nations, which governs the program.
A 21 megawatt (MW) wind farm in Vietnam is the 6000th project, which displaces fossil-fuel-generated power and reduces emissions by 32,000 ton a year.
In the past 10 years, CDM projects have delivered 110,000 MW of renewable energy capacity, roughly equivalent to Africa’s total power generation capacity.
Registered CDM projects are in 83 developing countries and range from replacing inefficient wood stoves to solar projects and increased industrial efficiency.
One example is a forestry project in Ethiopia, which is alleviating poverty as well as cutting emissions and building resilience to climate change. More than 2,700 hectares of degraded land has been restored where just about all the trees had been cleared.
In December, at the international climate summit Qatar, governments agreed to renew the Kyoto Protocol until 2020, which includes market-based tools like the Clean Development Mechanism.
Research shows that the CDM has spurred $215 billion in investments, but low prices for certified emission reduction credits threaten the program. The value of credits is down over 90% in the past year because of weak demand.
Demand is low because of the lack of action on the part of countries to create or enforce substantive climate change targets.
Under the Kyoto protocol, 37 countries and the EU agreed to binding targets to reduce greenhouse gas emissions. They could reduce them by using three "flexible mechanisms" – cutting emissions directly, trading emissions credits or through Clean Development Mechanism.
The Clean Development Mechanism is also the main source of income for United Nation’s Adaptation Fund, which finances projects that help developing countries that are particularly vulnerable adapt to the impact of climate change.
"The global carbon market is at a crossroads. If we take the wrong turn we risk losing billions of lower cost private investment and new technology solutions in developing countries," says Andrew Steer, World Bank Special Envoy for Climate Change. A stronger, more robust carbon market with clear signals is needed, he says.
Even the global carbon market is close to collapsing, the voluntary market is flourishing. Participants in global carbon markets tend to be compliance-oriented, while voluntary markets are driven by corporate responsibility leaders, who have motivations beyond compliance.