CDM: a grey zone in aid financing

The Clean Development Mechanism (CDM) has been a grey zone in aid financing. Whether hydropower dams, wind farms or biogas plants, the idea of CDM projects is that they generate carbon credits in developing countries which industrialized countries can purchase as a way of offsetting their own carbon emissions. The extent to which ODA can be used to finance the CDM process has been the subject of tough debate among the donors within the OECD Development Assistance Committee.

Development Today has followed these debates closely. As it turns out, Norway, which wanted aid kept out of CDM entirely, represented one extreme. The opposing view was held by Denmark, which argued for no reporting of CDM expenditures as ODA. A compromise was reached among OECD donors in 2004: aid could finance CDM projects, but donors would have to subtract the value of the resulting carbon credits from their ODA. They would also be allowed to use aid to finance “capacity building” for CDM projects up to the registration phase.

Among the Nordics, the Danes alone have consciously linked reaching their Kyoto carbon emission reduction targets with promotion of Danish businesses and assisting poorer countries. Denmark has used a range of aid financing tools to build up CDM projects, and then signed agreements to buy back carbon credits from many of those same projects. The other Nordics shun this practice. Here is a sample of our coverage:

• No commitment on G77 call for additional climate funds (Read)
• Aid-funded studies lead to Danish carbon credit purchase (Read)
• Sida avoids ‘perverse incentives’ in CDM projects (Read)
• Danes combine aid, export promotion when shopping in carbon market (Read)
• Opinion by Minister Ulla Tørnæs: Climate proofing aid, promoting CDM in Africa (Read)
• Danes target grey zone in OECD rules on aid and carbon credits (Read)
• Danish Energy Management aims for top spot (Read)
• Finns, Italians and Dutch first to benefit from CDM projects (Read)
• DAC to reach consensus on CDM reporting (Read)
• Frafjord Johnson: ‘developing countries paying for our emission reductions’ (Read)
• Norway demands monitoring to avoid diversion of funds from poor (Read)
• Donors want to report CDM investments as aid (Read)
 • Aid plays key role in Danish strategy on Kyoto Protocol (Read)

Subscribe to Development Today.