Climatic Change (2007) 84:7590

DOI 10.1007/s10584-007-9269-9

Does the current Clean Development Mechanism (CDM)

deliver its sustainable development claim? An analysis
of officially registered CDM projects

Christoph Sutter & Juan Carlos Parreo

Received: 14 February 2006 / Accepted: 11 April 2007 / Published online: 7 July 2007
# Springer Science + Business Media B.V. 2007

Abstract This article presents an analytical framework for analyzing Clean Development
Mechanism (CDM) projects in terms of their contribution to employment generation, equal
distribution of CDM returns, and improvement of local air quality. It assesses 16 officially
registered CDM projects with regard to whether they fulfill the two objectives required by
the Kyoto Protocol: greenhouse gas emission reductions and contribution to sustainable
development in the host country. While a large part (72%) of the total portfolios expected
Certified Emission Reductions (CERs) are likely to represent real and measurable emission
reductions, less than 1% are likely to contribute significantly to sustainable development in
the host country. According to our analysis, there are currently no UNFCCC registered
CDM projects that are likely to fulfill the Kyoto Protocols twofold objective of
simultaneously delivering greenhouse gas (GHG) emission reduction and contributing to
sustainable development.

1 Background: the problem of the twin objective of the CDM

The Clean Development Mechanism (CDM) was designed with two objectives: To
contribute to local sustainable development in the host country and to assists Annex-I
countries to achieve their emission reduction targets in a cost-efficient manner (UNFCCC

C. Sutter
South Pole Carbon Asset Management, Technoparkstrasse 1, 8005 Zrich, Switzerland

Present address:
J. C. Parreo
Schuitenweg 33, 2586 AE Den Haag, The Netherlands
juancaparre@hotmail.com

Present address:
C. Sutter (*)
Zrichstrasse 123, CH-8700 Ksnacht, Switzerland
e-mail: christoph.sutter@gmx.ch
76 Climatic Change (2007) 84:7590

Table 1 Overview of sustainable development criteria and respective indicators as applied in this study

Category Criterion Indicator

Economic Employment Generation Additional person month per CER, compared to

development baseline scenario of the project
Social development Equal Distribution of Ownership structure of project activity
Project Return
Environmental Air Quality Change of air pollutants emission relative to baseline
development

1997). The CDM inherited its twin objective from the two main instruments that were
merged into the CDM. The sustainable development objective originates from the proposed
Clean Development Fund (CDF), whereas the objective of cost-efficient emission
reductions was the main driver behind the concept of Joint Implementation (JI). As a
consequence of the amalgam, the CDM was given a twin objective. Hence, the question
rose: Is it possible to fulfill both these objectives through one single mechanism? Sutter
(2003) identified a trade-off between the two objectives of the CDM in favor of the cost-
efficient emission reductions goal.
The Marrakech Accords affirm that it is the host Partys prerogative to confirm whether
a clean development mechanism project activity assists it in achieving sustainable
development (UNFCCC 2002). Consequently, non-Annex I countries can define the
sustainable development requirements for CDM projects in their country according to their
own wishes. At the same time, most countries will not have the market power to
considerably influence the global market price for emission reductions. Competition among
non-Annex I parties in attracting CDM investments could, therefore, create an incentive to
set low sustainable development standards in order to attract more projects with low
abatement costs. This could lead to a race to the bottom in terms of sustainable
development standards with non-Annex I parties undercutting each other to attract CDM
investments (Kelly and Helme 2000), thereby weakening the sustainable development
objective.
The absence of international sustainable development standards alongside a highly
competitive supply side of the CDM is likely to cause a trade-off in favor of the cost-
efficient emission reduction objective. Neither Annex I countries nor single non-Annex I
parties have direct incentives to implement strict sustainable development criteria (Table 1).
Figure 1 shows the theoretical and highly hypothetical distribution of CDM projects that
would be required if no trade-off existed. Absence of a trade off between abatement costs
and sustainable development objectives would only be possible if all projects were located
on a strictly decreasing function in the cost-sustainable development space.
Such a clear correlation could not been described for CDM projects so far. If it is
assumed that such a strictly decreasing function does not exist within the worldwide pool of
potential CDM projects,1 then, a trade-off between the two objectives of the CDM is likely
to exist.
This paper analyzes the first 16 registered CDM projects to see whether a trade-off
between objectives exists.

1
Empiric data that supports this intuition can be found, for example, in Sutter et al. (2001). In fact, the
authors show that some of the projects analysed showed a very high degree of sustainable development but at
the same time enormous abatement costs.
Climatic Change (2007) 84:7590 77

CER abatement costs

[$ / t CO2]

Market price for

GHG emissions
reductions

- 0/0 +
Contribution to
sustainable development

-
Fig. 1 Theoretical, highly hypothetical distribution of CDM projects (indicated by squares) in the cost-
sustainable development space, which would ensure no trade-off between the twin objective of CDM

2 Methodology of evaluation

2.1 Theoretical background

The Assessment of CDM projects, on the basis of their fulfillment of the two objectives of
the CDM, is based on the methodology Multi-Attributive Assessment of CDM (MATA-
CDM). This methodology was introduced by Sutter (2003) to evaluate the contribution of
CDM projects to sustainable development in host countries and is based on the Multi-
Attribute Utility Theory (MAUT).2
The objective of MATA-CDM is to generate a holistic overview assessment of the
sustainable development contribution of CDM projects rather than a strictly scientific
evaluation of single parameters. It draws from various disciplines and is designed to assist
decision makers, aiming at being accurate and practical at the same time.
Figure 2 shows the five assessment steps and the central equation of MATA-CDM to
compute the overall utility of CDM projects. The formula presents the weighted sum of
utilities of the assessment criteria.
There are no fixed sets of assessment criteria within MATA-CDM; they are to be
identified in the first step. Since sustainable development is a very complex concept, a good
balance between manageability and scope should be found when selecting the criteria.
Consequently, evaluators should be aware of the normative nature of criteria selection. The

2
For an introduction and overview of MAUT, see e.g. De Montis et al. 2000 or Scholz and Tietje 2002.
78 Climatic Change (2007) 84:7590

Steps of MATA-CDM

Step 1: Identification of
sustainability criteria

Step 2: Defining indicators

2a: Specifications of
indicators n
U (P) = wi ui [ ci ( P )]
2b: Utility functions of
indicators

i =1
Step 3: Weighting the criteria

Step 4: Assessment of CDM

project

Step 5: Aggregation and

interpretation of results

Legend: P = CDM Project

Wi = Weighting of criterion i U = Overall Utility

Ci = Sustainability criterion i Ui = Single utility of criterion i

Fig. 2 Steps involved in MATA-CDM and its central equation to compute the overall utility of CDM
projects

tool allows for a combination of criteria from different disciplines, as in this case from
economics, social sciences, and natural sciences. However, mapping contributions to
sustainable development by selected indicators remains a simplified construction of reality
and results should be interpreted accordingly.

2.2 Indicators used for the assessment

The advantage of MAUT is that indicators can be measured in the units that best suit the
nature of each specific criterion. The concept of utility allows the quantities to be
normalized with different units and aggregated into a single value. All indicators are
measured against a reference case the so called baseline. For this study, the same baseline
scenarios have been used as defined in the validated and registered Project Design
Documents (PDDs).3
Each criterion selected during Step 1 of MATA-CDM must be specified and
supplemented with a clearly defined and assessable indicator. Indicators measure the extent
to which a CDM project meets the sustainable development (SD) criteria. The set of criteria
used for this study is shown in.

3
Defining baseline scenarios is a complex and much debated process. The purpose of this paper is not to
elaborate on various baseline possibilities. Therefore, baseline scenarios as registered at UNFCCC were used
for the evaluated projects.
Climatic Change (2007) 84:7590 79

In the following section the details regarding the indicators and their utility functions are
presented. In order to make the utility function more manageable for decision makers, their
values are rated with three letters: A, B and C. Thus, arithmetical operations will be
conducted with the numbers and the letter representation allows for a better communication
of how projects contribute to sustainable development. Such a presentation of ratings is
more manageable among decision makers and other stakeholders.

2.2.1 Employment generation

It is widely agreed that employment generation and poverty reduction are strong
components of sustainable development (United Nations 2005). Thus, CDM projects are
evaluated in regard to the amount of employment they generate measured in person months
during construction and operation of the projects and expressed as person month per 1,000
CERs. The formula to calculate employment generation (EG) is as follows:
JP
JB
EG person months per 1;000 CERs
CERp
where JP = the total amount of person months created by the project, including the
construction and operation phases; JB = the total amount of person months created in the
baseline case; CERp = Emission Reductions (1,000 CERs)

For the purpose of this assessment, the projects will be qualified as shown in Table 2:

2.2.2 Distribution of CER returns

To assess the likely distribution of CER returns, the ownership structures of project
activities were analyzed. Evaluation of the ownership structure for CDM projects was
developed from the theoretical perspective of the Normative Stakeholder Approach
(Mygind 2004). It has evolved into the Analytical Shareholder Approach, where specific
weight, benefits and rights of the different stakeholders are considered (Mygind 2004).
Consequently, the distribution of power and benefits among stakeholders of a CDM project
activity can be deduced from its ownership structure.
Several ownership structures can be found in the literature, where ownership is
categorized as: state, international, individuals, financial, and non-financial (Bhren and
degaard 2001), or in simpler models as: state, private and foreign. It is also stated that the
ownership has an effect on wage interception and rent sharing, based on evidence that the
share of rents taken by workers in local companies tend to be higher that the ones working
in foreign companies (Dobbelaere 2004). For the purpose of the study, the ownership
structures of the projects are classified in Table 3:

Table 2 Utility and rating of criterion employment generation (adapted from Sutter 2003)

Scale of indicator Utility Rating

Employment generation over 10 person month per 1,000 CERs 1 A

Employment generation between 1 and 10 person month per 1,000 CERs 0.5 B
Employment generation under 1 person month per 1,000 CERs 0 C
Employment decrease between 1 and 10 person month per 1,000 CERs 0.5 D
Employment decrease over 10 person month per 1,000 CERs 1 E
80 Climatic Change (2007) 84:7590

Table 3 Utility and rating of criterion distribution of CERs returns

Scale of indicator Utility Rating

Largest fraction of profits from CER revenues flows to the poorer 50% of host 1 A
country population (e.g. project owner is small producer association).
Largest fraction of profits from CER revenues flows to the host country population 0.5 B
(e.g. project owner is a corporation of the host country, host country owned entity).
Largest fraction of profits from CER revenues flows to people outside the host 0 C
country (e.g. project owner is a internationally hold corporation).
Project activity reduces revenues of the host country. 0.5 D
Project activity reduces revenues of the poorer 50% of host country population. 1 E

2.2.3 Improvement in local air quality:

To measure the environmental development generated by a CDM project activity, improvement

in local air quality is used as an indicator. Air quality is regarded in the Millennium
Development Goals as a means for ensuring environmental sustainable development (United
Nations 2005). Projects are thus evaluated based on the effects of pollutants emitted into the
atmosphere on the local population. For this the scale Table 4 is used:

2.2.4 Likelihood of real emission reductions

MATA-CDM was used to evaluate whether the goal of sustainable development is met and to
what extent. A measure of the likelihood that the emission reductions claimed by the project
activity are really occurring is required to evaluate the emission reduction objective (Table 5).
To do this a rating system was applied which was not included in the sustainable development
rating of the project activities but was an indicator for the emission reduction objective.
Emission reduction calculations of CDM project activities are defined with the help of a
baseline scenario, which is by definition counterfactual as it describes what would have
happened in the absence of the project activity. Therefore, it is not possible to say with 100%
certainty whether a particular CER from a CDM project activity truly reflects real emission
reductions, thus is additional.4 However, a likelihood for emission reductions to be real and
additional can be indicated. We use the expected profitability increase of a project thanks to
the CDM registration as the indicator for this likelihood. The chosen profitability measure is
the projects Internal Rate of Return (IRR), hence the indicator is defined as IRR = IRR of
CDM project IRR of baseline. If the CDM makes a significant change in profitability, i.e.,
project shows a large IRR, then there is a high likelihood that the project is truly additional.
On the other hand, a CDM project showing only a slight IRR increase (or even a decrease) is
likely to be implemented even without the CDM. Three project categories were identified
each expressing the likelihood for real and additional CERs:
It should be noticed that this indicator includes remarkably high IRRs. This is due to the
high profitability that some CDM projects can achieve related to the necessary investments
and are also considerably affected by the global warming potential (GWP)5 of certain
gases. For example, each tonne of reduced HFC-23, whose GWP is 11,700, equals to
11,700 tonnes of CO2 equivalents and thus increases the profits from this type of projects.
4
On the different concepts of additionality see e.g. Greiner and Michaelowa (2003).
5
A measurement technique to define the relative contribution of each GHG to atmospheric warming. (IPCC,
http://www.grida.no/climate/ipcc/emission/168.htm).
Climatic Change (2007) 84:7590 81

Table 4 Utility and rating of criterion improvement of local air quality

Scale of indicator Utility Rating

Considerable decrease in respiratory disease pollutants or carcinogens 1 A

Considerable decrease in odor/moderate decrease in respiratory disease 0.5 B
pollutants or carcinogens
No change to baseline 0 C
Considerable increase in odor/moderate increase in respiratory disease 0.5 D
pollutants or carcinogens
Considerable increase in respiratory disease pollutants or carcinogens 1 E

2.3 Assessed CDM projects

The 16 CDM projects assessed in the analysis correspond to the projects registered at
UNFCCC as of August 30, 2005 (UNFCCC 2005; Table 6). Most of the information was
obtained from the Project Design Documents (PDDs) available on the UNFCCC web site
and scientific literature on different project types. As per U.N. rules, all PDDs have been
validated by independent validators (Designated Operational Entities, DOEs). Additionally,
a survey was sent to all the 16 project developers for detailed questions about the
sustainable development criteria discussed above. Four out of the sixteen responded. The
projects were evaluated on the basis of their contribution to sustainable development as per
the three criteria: employment generation, distribution of CER returns, and local air quality.
The portfolio evaluated consists of nine renewable power projects, three landfill gas
recovery projects, two Trifluoromethane (HFC-23) reduction projects, one fuel switch
project and one energy efficiency project applied in housing. The portfolio includes nine
small-scale and seven large scale project activities in nine countries.

3 Results

3.1 Employment generation

Our analysis of the approved CDM projects shows that the current CDM portfolio has a minor
effect on employment in host countries. Ninety-nine percent of the CERs come from projects
that are rated C regarding employment generation. In fact, the portfolios average CER
generates around 235 person months of additional employment per projects with an A rating,
3.5 for those with a B rating and 0.1 for those with a C rating, resulting in a portfolio average of
2.3 person month per 1,000 CERs. This low average is the result of large-volume projects such
as Trifluoromethane (HFC-23) decomposition projects, which are end-of-the-pipe solutions and
do not have a substantial employment effect. On the other end of the spectrum, the portfolio
includes a few small-scale projects in the biomass power generation sector that show very high
employment effects (over 300 person month per CER; Tables 7 and 8).

Table 5 Scale of indictor likelihood of real emission reductions and corresponding additionality rating

Scale of indicator Additionality rating

IRR>100% A
5%<IRR<100% B
IRR<5% C
82 Climatic Change (2007) 84:7590

Table 6 Overview of portfolio of CDM project activities approved by August 30, 2005

Title Host Other parties Small Technology CERs/ Methodology

country scale 7 years

NovaGerar Landfill Brazil World Bank No Landfill gas 4,690,931 AM0003

Gas to energy Netherlands Clean small extraction,
Project Development scale collection,
Facility power
generation and
flaring
Rio Blanco Small Republic of Ministry of Small Run of river 124,600 AMS-I.D.
Hydroelectric Honduras Foreign Affairs Scale hydropower
Project Finland station.
Project for GHG Government Rabobank, The No HFC 23 21,000,000 AM 0001
emission reduction of India Netherlands. small Thermal
by thermal Sumitomo scale oxidation and
oxidation of HFC Corporation Japan combustion
23 in Gujarat gases treatment
HFC Republic of Japan No HFC 23 9,800,000 AM0001
Decomposition Korea small Thermal
Project in Ulsan scale oxidation and
combustion
gases treatment
Cuyamapa Republic of NA Small Run of river 269,864 AMS-I.D.
Hydroelectric Honduras Scale hydroelectric
Project project
e7 Bhutan Micro Kingdom of Japan Small Run of river 3,668 AMS-I.A.
Hydro Power CDM Bhutan Scale hydropower
Project (e7Bhutan station
Project)
Biomass in Government Netherlands Small Biomass 219,618 AMS-I.D.
Rajasthan of India Government Scale powered
Electricity SenterNovem generation
generation from plant
mustard crop
residues
Cortecito and San Republic of NA Small Run of river 262,262 AMS-I.D.
Carlos Honduras Scale hydroelectric
Hydroelectric project
Project
Santa Cruz landfill Bolivia NA No Landfill gas 578,760 AM0003
gas combustion small extraction,
project scale collection and
flaring
Huitengxile PR China Netherlands No Wind Turbines 360,003 AM0005
Windfarm Project Government small
SenterNovem scale
Graneros Plant Fuel Chile Electric Power No Change of 136,066 AM0008
Switching Project Development small fossil fuels by
Japan Co. scale natural gas
5 MW Dehar Grid- Government NA Small Run of river 114,618 AMS-I.D.
connected SHP in of India Scale hydroelectric
Himachal Pradesh project
Climatic Change (2007) 84:7590 83

Table 6 (continued)

Title Host Other parties Small Technology CERs/ Methodology

country scale 7 years

Clarion Biomass Government of NA Small High pressure 184,100 AMS-I.D.

Power Project India Scale steam turbine
Salvador da Bahia Brazil Showa Shell No Landfill gas 4,652,718 AM0002
Landfill Gas Sekiyu K.K. small extraction,
Management (Japan); Shell scale collection and
Project Trading flaring
International Lted.
(UK)
La Esperanza Republic of Italy. International Small Run of river 259224 AMS-I.D.
Hydroelectric Honduras Bank for Scale hydropower
Power Reconstruction station
and Development
Kuyasa low-cost South NA Small Energy 46,060 AMS-I.C.,;
urban housing Affrica Scale efficiency II.C.,III.E.
energy upgrade measures
project, Khayelitsha
Source: PDDs available at cdm.unfccc.int

3.2 Distribution of project returns

The majority of projects (13 out of 16) and the majority of CERs generated by the CDM
project portfolio (76%) have a B-rating for the distribution of project returns. Eleven of the
B-rated projects are owned by local private companies, while two are government owned

Table 7 Estimated employment generation by registered CDM project activities

Project analysis Estimated employment effect Employment

(Person month/1,000 CER) rating

NovaGerar Landfill Gas to energy Project 0.030 C

Rio Blanco Small Hydroelectric Project 0.225 C
GHG emission reduction by thermal oxidation 0.013 C
of HFC 23 in Gujarat
HFC Decomposition Project in Ulsan 0.029 C
Cuyamapa Hydroelectric Project 0.253 C
e7 Bhutan Micro Hydro Power CDM Project 1.908 B
Biomass in Rajasthan Electricity generation 165.742 A
from mustard crop residues
Cortecito and San Carlos Hydroelectric Project 0.184 C
Santa Cruz landfill gas combustion project 0.000 C
Huitengxile Windfarm Project 0.005 C
Graneros Plant Fuel Switching Project 0.000 C
5 MW Dehar Grid-connected SHP in Himachal Pradesh 1.832 B
Clarion Biomass Power Project 304.183 A
Salvador da Bahia Landfill Gas Management Project 0.030 C
La Esperanza Hydroelectric Power 0.275 C
Kuyasa low-cost urban housing energy upgrade 6.687 B
project, Khayelitsha

Source: PDDs available at cdm.unfccc.int

84 Climatic Change (2007) 84:7590

Table 8 Estimated employment generation by registered CDM portfolio analysis

Portfolio analysis CERs from first Percent of portfolio Average person month/1,000
7 years (%) CER

CERs with employment 403,718 0.9 235.0

A-rating
CERs with employment 164,346 0.4 3.5
B-rating
CERs with employment 42,134,428 98.7 0.1
C-rating
Total CERs in portfolio 42,702,492 100 2.3

Source: PDDs available at http://www.unfccc.int, own calculations

projects. The assessment methodology assumes that when a project is owned by a local
private company or by the government, the largest fraction of profits from CER revenues
paid to the project participants flows to the host countrys population (Tables 9 and 10).
Twenty-three percent of all CERs are generated by projects owned by transnational private
companies, where it can be assumed that the largest fraction of profits from CER revenues
flows to people outside the host country. Only 0.3% of the portfolios CERs are A-rated
since their revenues are likely to flow to the poorer 50% of the host country population.
These are the most likely projects to directly contribute to poverty reduction.

Table 9 Ratings of registered CDM project activities regarding distribution of CER revenues

Project analysis Ownership of project Distribution

rating

NovaGerar Landfill Gas to energy Project Private company local B

Rio Blanco Small Hydroelectric Project Local small producer A
association
GHG emission reduction by thermal oxidation Private company local B
of HFC 23 in Gujarat
HFC Decomposition Project in Ulsan Private company C
transnational
Cuyamapa Hidroelectric Project Private company local B
e7 Bhutan Micro Hydro Power CDM Project Government B
Biomass in Rajasthan Electricity generation from Private company local B
mustard crop residues
Cortecito and San Carlos Hydroelectric Project Private company local B
Santa Cruz landfill gas combustion project Private company local B
Huitengxile Windfarm Project Private company local B
Graneros Plant Fuel Switching Project Private company C
transnational
5 MW Dehar Grid-connected SHP in Himachal Pradesh Private company local B
Clarion Biomass Power Project Private company local B
Salvador da Bahia Landfill Gas Management Project Private company local B
La Esperanza Hydroelectric Power Private company local B
Kuyasa low-cost urban housing energy upgrade Government B
project, Khayelitsha

Source UNFCCC, own classifications

Climatic Change (2007) 84:7590 85

Table 10 Portfolio analysis of registered CDM project activities regarding distribution of CER revenues

Portfolio analysis CERs from first 7 years Percent of portfolio (%)

Total CERs with distribution A-rating 124,600 0.3

Total CERs with distribution B-rating 32,641,826 76.4
Total CERs with distribution C-rating 9,936,066 23.3
Total CERs in portfolio CERs 42,702,492 100
Source UNFCCC, own classifications

3.3 Improvement of local air quality

Regarding improvements on local air quality per generated CER, three different groups of
projects within the current CDM project portfolio were identified. First, there are projects
that do not considerably reduce major local air pollutants. By volume of CERs this is the
largest group (96%) and includes projects that mainly eliminate Trifluoromethane (HFC-
23), and methane (CH4), which were given C-ratings regarding local air quality (see
Tables 11 and 12). Second are projects that either replace fossil intensive grid electricity or
undertake a fuel switch mainly from coal to natural gas. They account for 3% of total CERs
and were given a B-rating, which corresponds to considerable decrease in odor and/or
moderate decrease in respiratory disease pollutants or carcinogens. Finally, the remaining
1% of CERs comes from small-scale project activities that received an A-rating for local air
quality because they replace electricity generated by diesel generators.

3.4 Likelihood of real emission reductions

In contrast to the low ranking of most CERs in the three sustainable development criteria,
the majority (72%) of CERs in the current CDM portfolio got an A-ranking for
additionality, this means that there is a high likelihood that the emission reductions happen
only due to the CDM component of the project. This result is influenced by the fact that the
largest two projects (both HFC-23 reduction projects) had an A-rating additionality. In

Table 11 Projects and portfolio rating on local air quality improvement

Project analyis Improvement in local air quality Air quality rating

NovaGerar Landfill Gas to energy Project Mainly decrease in CH4 and odor C
Rio Blanco Small Hydroelectric Project Decrease of diesel generator pollutants A
GHG emission reduction by thermal oxidation of HFC 23 in Gujarat C
Decrease in HFC23
HFC Decomposition Project in Ulsan C
Cuyamapa Hidroelectric Project Decrease of fossil power plant pollutants B
e7 Bhutan Micro Hydro Power CDM Project Decrease of diesel generator pollutants A
Biomass in Rajasthan Electricity generation from mustard crop residues Decrease of fossil power plant pollutants B
Cortecito and San Carlos Hydroelectric Project Decrease of fossil power plant pollutants B
Santa Cruz landfill gas combustion project Mainly decrease in CH4 and odor C
Huitengxile Windfarm Project Decrease of fossil power plant pollutants B
Graneros Plant Fuel Switching Project Private company transnational C
5 MW Dehar Grid-connected SHP in Himachal Pradesh Decrease of diesel generator pollutants A
Clarion Biomass Power Project Decrease of diesel generator pollutants A
Salvador da Bahia Landfill Gas Management Project Mainly decrease in CH4 and odor C
La Esperanza Hydroelectric Power Decrease of fossil power plant pollutants B
Kuyasa low-cost urban housing energy upgrade project, Khayelitsha Reduction in NOx and SOx at house level B
86 Climatic Change (2007) 84:7590

Table 12 Portfolio rating on local air quality improvement

Portfolio analysis CERs from first 7 years Percent of portfolio (%)

Total CERs with additionality A-rating 426,986 1.0

Total CERs with additionality B-rating 1,417,031 3.3
Total CERs with additionality C-rating 40,858,475 95.7
Total CERs in portfolio CERs 42,702,492 100

contrast, the majority of projects (11 out of 16) had a low probability of being additional
and was rated C for additionality. For details, see Tables 13 and 14.

4 Synthesis and conclusions

After discussing the different evaluation criteria separately, we summarize the project ratings in
Table 15. Each project was given three ratings in the sustainable development field and one
additionality rating expressing the projects likelihood to generate real emission reductions.
To synthesize the findings, the three sustainable development criteria have been
integrated according to Step five of MATA-CDM, using equal weightings as shown in
Table 16. Together with the indicator for the likelihood of real emission reductions (the
additionality rating) the average sustainable development rating makes possible and
assessment of CDM projects for meeting the twin objective of the CDM.
The two indicators allow us to position all projects of the CDM portfolio in the two-
dimensional space of their contribution to sustainable development versus the likelihood of
emission reductions (Fig. 3). The size of dots plotted in Fig. 3 represents the CER volume
of the particular projects. Projects that contribute to both objectives of the CDM to

Table 13 Additionality rating of CDM projects and CER portfolio

Project analysis Estimated Additionality

IRR rating

NovaGerar Landfill Gas to energy Project 90.0% B

Rio Blanco Small Hydroelectric Project 1.0% C
GHG emission reduction by thermal oxidation of HFC 23 in Gujarat 290.0% A
HFC Decomposition Project in Ulsan 190.0% A
Cuyamapa Hidroelectric Project 4.0% C
e7 Bhutan Micro Hydro Power CDM Project 1.0% Ca
Biomass in Rajasthan Electricity generation from mustard crop residues 2.6% C
Cortecito and San Carlos Hydroelectric Project 4.0% C
Santa Cruz landfill gas combustion project 70.0% B
Huitengxile Windfarm Project 1.0% C
Graneros Plant Fuel Switching Project 5.0% Ca
5 MW Dehar Grid-connected SHP in Himachal Pradesh 2.1% C
Clarion Biomass Power Project 2.0% C
Salvador da Bahia Landfill Gas Management Project 50.3% B
La Esperanza Hydroelectric Power 5.3% C
Kuyasa low-cost urban housing energy upgrade project, Khayelitsha 3.0% Ca
a
Including CDM transaction costs, a lower IRR is estimated for very small project activities compared to the
baseline case
Climatic Change (2007) 84:7590 87

Table 14 CER portfolio of CDM projects

Portfolio analysis CERs from first Percent of portfolio (%)

7 years

Total CERs with additionality A-rating 30,800,000 72.1

Total CERs with additionality B-rating 9,922,409 23.2
Total CERs with additionality C-rating 1,794,289 4.2
Total CERs in portfolio CERs 42,702,492 100

sustainable development of the host country as well as to emission reductions would be

located in the top-right corner of the figure. However, the results show that the top-right
area of the figure is empty. Top-rated projects have either a high likelihood of producing
additional and therefore real emission reductions or contribute to the sustainable
development of the host country (see also Table 17). No CDM project activities (from
the evaluated sample) that has a high rating for both additionality and sustainable
development was registered. This means that projects registered by August 2005 might

Table 15 Rating of the different indicator; for sustainable development indicators numeric values as well as
responding A,B,C ratings are presented

Project title Employment Distribution Improvement Total SD Likelihood of

generation of CERs of local air rating emissions reductions
returns quality

NovaGerar Landfill Gas C 0.0 B 0.5 C 0 0.2 B

Rio Blanco Small C 0.0 A 1 A 1 0.7 C
Hydroelectric
Thermal oxidation of HFC C 0.0 B 0.5 C 0 0.2 A
23 in Gujarat
HFC Decomposition C 0.0 C 0 C 0 0.0 A
Project in Ulsan
Cuyamapa Hidroelectric C 0.0 B 0.5 B 0.5 0.3 C
e7 Bhutan Micro Hydro B 0.5 B 0.5 A 1 0.7 C
Power
Biomass in Rajasthan A 1.0 B 0.5 B 0.5 0.7 C
Cortecito and San Carlos C 0.0 B 0.5 B 0.5 0.3 C
Hydro.
Santa Cruz landfill gas C 0.0 B 0.5 C 0 0.2 B
Huitengxile Windfarm C 0.0 B 0.5 B 0.5 0.3 C
Graneros Plant Fuel C 0.0 C 0 C 0 0.0 C
Switching
5 MW Dehar B 0.5 B 0.5 A 1 0.7 C
Grid-connected
Clarion Biomass Power A 1.0 B 0.5 A 1 0.8 C
Project
Salvador da Bahia Landfill C 0.0 B 0.5 C 0 0.2 B
Gas
La Esperanza C 0.0 B 0.5 B 0.5 0.3 C
Hydroelectric Power
Kuyasa low-cost urban B 0.5 B 0.5 B 0.5 0.5 C
housing
88 Climatic Change (2007) 84:7590

Table 16 Synthesized results: sustainable development and additionality rating of all registered projects (as
of August 30, 2005)

Project title Sustainability (average Likelihood of real emission

sustainability rating) reduction (estimated IRR, %)

NovaGerar Landfill Gas to energy Project 0.17 90

Rio Blanco Small Hydroelectric Project 0.67 1
GHG emission reduction by thermal 0.17 290
oxidation of HFC 23 in Gujarat
HFC Decomposition Project in Ulsan 0.00 190
Cuyamapa Hidroelectric Project 0.33 4
e7 Bhutan Micro Hydro Power CDM 0.67 1
Project*
Biomass in Rajasthan Electricity 0.67 3
generation from mustard crop residues
Cortecito and San Carlos Hydroelectric 0.33 4
Project
Santa Cruz landfill gas combustion 0.17 70
project
Huitengxile Windfarm Project 0.33 1
Graneros Plant Fuel Switching Project* 0.00 5
5 MW Dehar Grid-connected SHP in 0.67 2
Himachal Pradesh
Clarion Biomass Power Project 0.83 2
Salvador da Bahia Landfill Gas 0.17 50
Management Project
La Esperanza Hydroelectric Power 0.33 5
Kuyasa low-cost urban housing energy 0.50 3
upgrade project, Khayelitsha*

*Due to CDM transaction costs CDM project IRR estimated to be lower than baseline IRR

Legend: CDM project size, represented in the

amount of CERs
High 1.0
(average sustainable development rating)
Contribution to sustainable development

Biomass
0.8
Hydro
.
0.6
I IV

0.4 Hydro III II

Housing HFC 23
LFG
0.2 Wind
Fossil fuel switch
0.0
Low
-4.0 -3.5 -3.0 -2.5 -2.0 -1.5 -1.0 -0.5 0.0 0.5 1.0 1.5

-0.2 Low Likelihood of real emissions reductions High

(log of delta IRR)

Fig. 3 Registered CDM project activities in the emission reduction sustainable development space. For
graphical purposes (log scale) negative IRR were set to 0.1%
Climatic Change (2007) 84:7590 89

Table 17 Distribution of CERs between likelihood of real emissions reductions and contribution to
sustainable development

Likelihood of emissions Contribution to Quadrant CERs Percentage Projects Percentage

reductions sustainability (%) (%)

Low High I 642,936 1.5 4 25

High Low II 40,858,475 95.7 6 38
Low Low III 1,151,353 2.7 4 25
High High IV 49,728 0.1 2 13
Total 42,702,492 100.0 16 100.0

contribute to one of the two CDM objectives, but neither contributes strongly to both
objectives. In addition, around 25% of all projects have neither a relevant contribution to
sustainable development nor are they likely to generate real emission reductions. This
means that they serve neither of the two CDM objectives as stated in the Kyoto Protocol.
If the volume of CERs is considered, a clear tendency of the CDM to deliver real
emission reductions but not to contribute towards host countrys sustainable development
can be observed. The portfolio is dominated by a few large projects with a high likelihood
to reduce emissions but no relevant contribution to host countries sustainable development
(95.7% of CERs volume are located in quadrant II of Fig. 3). This is evidence that the
trade-off is strongly in favor of the cost-efficient emission reduction objective, while
neglecting the sustainable development objective. To conclude, the applied analysis
suggests that currently registered CDM projects may be far from delivering their claims to
promoting sustainable development.
Nevertheless, as indicated in Section 3.1, the outcomes obtained here are depending on
the simplification of the concept of sustainable development represented in the selected
indicators. With the addition of different indicators and different normative weightings,
different outcomes may have been obtained.
Designed as a market mechanism, the CDM intends to make use of market forces.
However, so far, only one of the two CDM objectives is measured by the market: emission
reductions are given a price per reduced ton of CO2 equivalent. Currently, contributions to
sustainable development are not well reflected in CER prices. To be able to differentiate
CER prices regarding sustainable development, respective information from underlying
CDM projects has to be made available. The tool presented in this paper aids decision
maker to differentiate between projects as it makes information regarding sustainable
development available. Bringing such information to the market is a basis to differentiate
prices of CERs according to the sustainable development benefits of the underlying
projects. A premium price for CERs from projects with a strong contribution to sustainable
development might increase the share of such projects in global carbon markets.

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