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Introduction

Clean Development Mechanism: The Clean Development Mechanism or CDM is an attempt at a
market-based solution for addressing the problem of global warming. It builds on experience derived
from various regional markets for atmospheric pollutants, most notably the United States’ experience with
emissions trading under the Clean Air Act. The concepts of CDM refer to project based co-operations
between two countries, where greenhouse gas emission reductions take place in the country with lower
marginal abatement costs. In other words, a country that has adopted a quantified greenhouse gas
emission reduction or limitation commitment under the Kyoto Protocol can fulfill parts of this
commitment on the territory of another country where the costs are lower. The CDM envisages a project
co-operation between industrialized countries with Annex I countries (industrialized countries) and
Annex II countries (developed countries which pay for costs of developing countries), which have
exempted from quantified commitments under the Protocol (JI refers to a project-based co-operation
between two industrialized countries). The main benefits that can be expected from the project-based
Kyoto mechanisms are, on the one hand, that they potentially reduce industrialized countries’ costs of
meeting the Kyoto Protocol targets, whereas, on the other hand, they are to support the host countries
objectives regarding sustainable development. With the help of CDM, countries which have set
themselves an emission reduction target under the Kyoto Protocol (Annex I countries) can contribute to
the financing of projects in developing countries (Annex II countries) which do not have a reduction
target. Contributing to the sustainable development of the host country, the project should reduce the
emission of greenhouse gases. The achieved emission reductions can be used by the Annex I country in
order to meet its reduction target.

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About Clean Development Mechanism

Structure of the CDM: The clean development mechanism is a project-based system. This means that
it accomplishes its objectives at the relatively fine-grained scale of individual projects that are validated
by designated entities and registered with the CDM Executive Board, the mechanism’s governing body,
rather than at an industry or sector-wide scale. Each project wishing to participate in the CDM must
prepare a Project Design Document that explains in detail how its future emissions reductions will be
real, additional, and not induce leakage. It must also prepare a monitoring methodology that explains in
detail how it will monitor emissions reductions made by the project. A project may also utilize a
previously approved monitoring methodology. Real emissions reductions are ones that are monitored with
sufficient care to insure that they actually occur. Additional emissions reductions are ones that are in
addition to any that would have occurred absent the CDM subsidy. Leakage of emissions occurs when
emissions reductions that would have occurred within a project absent the CDM subsidy instead occur
outside it because of the subsidy.

Goals of the CDM: The Clean Development Mechanism was created with three goals. First, it aim is
to accomplish the overarching goals of the Framework Convention. Second, it aims to encourage
sustainable development in Annex II countries. Third, the CDM is intended to reduce the cost of
compliance with the Protocol for Annex I countries.
The Clean Development Mechanism is intended, according to the Protocol, to help in accomplishing the
goal of the Convention of “preventing dangerous interference” with the climate system. It aims to do this
by assisting developing countries in reducing their emissions of greenhouse gas. Thus the CDM is a
significant and indeed the only way in which Annex II countries signatories to the Kyoto Protocol will
contribute towards achieving its goals. A not unrealistic hope for the CDM was that by providing Annex
II countries with financial incentives for low-carbon intensity development, these nations’ development
paths might be nudged onto more climates friendly paths and engaged for the long haul.
The second CDM objective, sustainable development, is left largely undefined by the Protocol or the
implementing directives of later conferences of the parties. To the extent that the provision has teeth, it is
given them by the requirement under the CDM that the host county DNA of a project must certify that it
meets the DNA’s standards of sustainability. Although some DNA’s have prioritized particular types of
projects, they have not rejected other types that would otherwise be capable of producing CERs (Certified
Emissions Reductions).
The third CDM goal, lowering the cost of compliance for Annex I parties, was thought possible for two
reasons. The majority of additional energy capacity to be built up to and during the First Compliance

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Period (2008-2012) would be located in the developing world where rates of economic growth were
highest and energy infrastructure was least developed. Also, the relative cost of prematurely retiring high-
carbon emission intensity power plants is significantly higher than building new low- or zero carbon
emission energy capacity. Thus if the CDM could be used to subsidize the substitution of new clean
power capacity in the developing world for premature retirement of old dirty power capacity in the
developed world, it could substantially lower the cost of treaty compliance with no change in
environmental outcome since the location at which an emission reduction of a particular quantity of CO2
takes place has no impact on the environmental benefit – lower atmospheric greenhouse gas
concentrations.

Rules and conditions of CDM: CDM projects need to seek approval by the CDM Executive Board.
While several of the detailed procedures to be applied to CDM forestry projects are still to be agreed, the
overall framework is already established for approving projects and accounting for the carbon credits
generated:
1. Only areas that were not forest on 31st December 1989 are likely to meet the CDM definitions of
afforestation or reforestation.
2. Projects must result in real, measurable and long-term emission reductions, as certified by a third
party agency ('operational entities' in the language of the convention). The carbon stocks
generated by the project need to be secure over the long term (a point referred to as
'permanence'), and any future emissions that might arise from these stocks need to be accounted
for.

3. Projects must be in line with sustainable development objectives, as defined by the government
that is hosting them.

4. Projects must contribute to biodiversity conservation and sustainable use of natural resources.

5. Only projects starting from the year 2000 onwards will be eligible.

6. Two percent of the carbon credits awarded to a CDM project will be allocated to a fund to help
cover the costs of adaptation in countries severely affected by climate change (the 'adaptation
levy'). This adaptation fund may provide support for land use activities that are not presently
eligible under the CDM, for example conservation of existing forest resources.

7. The funding for CDM projects must not come from a diversion of official development assistance
(ODA) funds.

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Benefits of Clean Development Mechanism

The basic principle of the CDM is simple: developed countries can invest in low-cost abatement
opportunities in developing countries and receive credit for the resulting emissions reductions, thus
reducing the cutbacks needed within their borders. While the CDM lowers the cost of compliance with
the Protocol for developed countries, developing countries will benefit as well, not just from the increased
investment flows, but also from the requirements that these investments advance sustainable development
goals. The CDM encourages developing countries to participate by promising that development priorities
and initiatives will be addressed as part of the package. This recognizes that only through long-term
development will all countries be able to play a role in protecting the climate.

From the developing country perspective, the CDM can:
 Attract capital for projects that assist in the shift to a more prosperous but less carbon-intensive
economy.
 Encourage and permit the active participation of both private and public sectors.
 Provide a tool of technology transfer, if investment is channeled into projects that replace old and
inefficient fossil fuel technology, or create new industries in environmentally sustainable
technologies, and
 Help define investment priorities in projects that meet sustainable development goals.

Specifically, the CDM can contribute to a developing country’s sustainable development objectives
through:
 Transfer of technology and financial resources.
 Sustainable ways of energy production.
 Increasing energy efficiency & conservation.
 Poverty alleviation through income and employment generation; and
 Local environmental side benefits.

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Difficulties to Imply Clean Development Mechanism

Most of the developed and developing countries in the world have adopted the CDM. But the rate is too
low in the countries of Asia because of the difficulties of implications of CDM. The difficulties to imply
CDM in the context of Asia are discussed below.

Difficulties in the implementation of CDM in Asia
Slow progress in CDM implementation in Asia is primarily due to the low priority given to climate
change and CDM in many Asian developing countries, and poor incentives for the private sector. The
difficulties to CDM implementation may be grouped into six categories, as discussed below.

1) Difficulties related to sustainable development (SD) benefits
CDM is designed to achieve the twin goals of reducing GHG emissions and contributing to SD in
developing countries. The decision as to whether a CDM project effectively contributes to SD rests with
the host countries. Many Asian countries, therefore, developed SD criteria for screening using economic,
social, environmental, and technological indicators. However, there is a strong concern that many projects
in the region without many SD benefits are getting registered, and that the application of SD criteria has
been lax at both national and international levels. It is widely felt that DNAs in some countries still lack
the capacity to set appropriate SD criteria, and that the national governments fail to recognize the
opportunity to integrate the CDM into the national SD agenda and engage the private sector in the CDM.

2) Institutional barriers
At the international level, the lengthy and complicated approval process by the CDM-EB, mainly due to
lack of finance and human resources, has long been criticized by project developers as a major factor in
the slow implementation of CDM.
At the national level, procedural and institutional problems of DNA in host countries are acting as a
barrier. A delay in DNA establishment also contributed to slow progress in some countries (e.g. Indonesia,
Thailand, and the Philippines). The lack of human and institutional capacity in DNAs of host countries
(e.g. Lao PDR, Mongolia, Pakistan, Thailand) to process project proposals also contributed to the delay in
implementation. Several host countries in the region still lack the knowledge and capacity to implement

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CDM due to lack of local experts to create Project Idea Notes (PIN) and Project Design Documents
(PDD).

3) Technical barriers
It is not technically easy to set up baselines for various CDM projects. This is partly due to the limited
number of approved methodologies in sectors where Asian countries have keen interest. For instance,
only 15 energy efficiency related CDM methodologies were approved (as of 14 September 2006) out of a
total 61 methodologies submitted.
4) Technological barriers
CDM is often considered as an additional source of Foreign Direct Investment (FDI) that can facilitate
the transfer of climate-friendly technologies, although FDI flows do not necessarily guarantee
implementation of CDM. One of the reasons for limited technology transfer through CDM may be that
the costs of modern technologies such as photovoltaic and wind power are still more expensive than
conventional technologies and the difference in costs often exceeds the CER revenue generated through
CDM. Participants from developing countries noted that the private sector in the developed countries,
which invested substantial resources in technological development, might be hesitant to transfer
technologies due to the fear of losing their international competitiveness. On the other hand, developed
countries are concerned about technology mismatch and the lack of appropriate capacity to absorb the
advanced technologies in developing countries.
5) Financial barriers
Several Asian countries (e.g. Indonesia) face difficulties in procuring underlying finance for CDM
projects due to both country-specific and CDM-specific risks. For example, in India, where unilateral
CDM projects predominate, difficulties in procuring underlying finance are especially great because of
high reliance on domestic capital. Lack of the right incentives to the private sector in some developing
countries served as a barrier to investment in CDM projects.
High transaction costs of CDM projects from the time of PDD development to the issuance of CER have
become a major barrier to effective CDM implementation in Asia. This is especially true in small scale
CDM projects, as it is estimated that projects generating below 20,000 annual CERs cannot cover their
transaction costs.
6) Legal barriers
In addition to the conventional risks such as regulatory (legislative change), political (war, riots,
nationalization policy or institutional change), and economic (foreign exchange risk, currency crisis)
risks, CDM projects face many legal risks because of uncertainty over the continuation of CDM beyond
2012, failure of project developers to issue CERs, incompatibility between domestic legislation and the

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Kyoto Protocol, non-compliance with legal requirements of the CDM, and irregular additional changes to
the rules.

Clean Development Mechanism and Bangladesh

Structure of CDM in Bangladesh: In order to participate in the Kyoto Protocol CDM process for
generating Certified Emission Reduction (CER) the government has set up a two tier Designated National
Authority (DNA) through a government Notification on 13/10/2003. The lower tier, located at the
Ministry of Environment and Forest, is the secretariat or operational body of the DNA. It is performing
all CDM related activities including giving preliminary approval of CDM projects through the CDM
Committee. The upper tier, known as the CDM Board, gives the final endorsement of the approved
projects. The Principal Secretary to the Prime Minister is heading the CDM Board. Since the Principal
Secretary has jurisdiction over all secretaries of different ministries of the government, it is expected
inter-ministerial coordination will be easily achieved. The main task of the DNA is to approve CDM
projects, which can eventually be registered by the CDM Executive Board of the United Nations
Framework Convention on Climate Change (UNFCCC). As per the Modalities and Procedures of CDM,
approval by the DNA is mandatory before project validation by any Designated Operational Entity and
subsequent registration by the Executive Board of the CDM. Apart from establishment of DNA, the
government has also established national procedures for evaluation and approval of CDM projects,
developed sustainable development criteria for the evaluation of CDM projects and finalized the CDM
strategy.

CDM Strategy: In order to attract CDM projects in Bangladesh it is advantageous to have a strategy for
CDM. The goal of the CDM strategy is to promote and attract climate friendly investment in Bangladesh.
The objectives of the strategy are:

1. To enhance awareness of stakeholders regarding CDM
2. To identify economic opportunities in sectors that will be beneficial to the country for CDM
projects
3. To identify and implement achievable and practical actions that can be undertaken immediately,
as well as longer-term actions which will result in future easy identification, design and
implementation of CDM projects.

The strategy reflects following principles:

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1. Participation in CDM projects shall be in line with existing sectoral policies.
2. CDM projects shall have tangible national impacts and will contribute to the national sustainable
development agenda.
3. CDM will be used to encourage private sector investments in climate-friendly development
activities.
4. CDM projects shall be designed so as to contribute to the improvement of the environment and
the welfare of the society as a whole.
5. CDM projects shall be encouraged to include elements that would contribute to poverty reduction
and promote employment generation.
6. CDM Projects shall promote and encourage the transfer of new, proven, affordable and relevant
technologies.
7. CDM Projects that address National Environmental issues will be especially encouraged.
8. CDM projects having adaptation and vulnerability co-benefits shall be encouraged.
9. CDM projects shall be approved through a participatory and transparent process that involves
detailed assessment of their economic, social and environmental benefits and their relevance to
local needs and priorities.
10. Tax incentive for green projects.

On Going Projects in Bangladesh:
I. Landfill Gas and Composting Project ( Financed by WWR, Netherlands): Waste Concern has
already prepared a CDM project on “Landfill Gas Recovery in Dhaka” under the recently completed
project entitled “ Capacity Development for Clean Development Mechanism in Bangladesh” under the
Ministry of Environment and Forest’s SEMP project with support from UNDP.

Apart from Landfill Gas Recovery Project in Dhaka, Waste Concern has prepared two composting
projects based in Dhaka and Chittagong as well as a landfill gas recovery project in Chittagong.
Moreover, Waste Concern is also preparing a baseline for poultry waste In Bangladesh.

On August 8, 2004, the National CDM Board of Bangladesh has recently approved the Landfill Gas
Recovery and Composting Project in Dhaka. World Wide Recycling (WWR) of the Netherlands is
investing in the aforementioned CDM projects in Dhaka, Bangladesh.

II. SSN Project (Supported by the Netherlands Government): The SouthSouthNorth (SSN) Network,
which is composed of environmental NGOs from four countries South Africa, Brazil, Indonesia and
Bangladesh, is developing CDM projects through the assistance of the Netherlands Government. SSN's

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participating institution in Bangladesh is Bangladesh Center for Advanced Studies (BCAS). Two CDM
projects are under development - SHS with Grameen Shakti and CFLs to replace incandescent light bulbs
with Grameen Shakti and Energy Pac. The first project aims to sell 30,000 SHSs in non-grid areas of
rural Bangladesh. It is estimated that approximately 10,000 tons of carbon dioxide (CO 2) would be
reduced per year bringing in a financial benefit of about $ 80,000 per year. The second project is designed
to sell 100,000 Compact Fluorescent Lamps (CFL) in rural areas. The project is expected to reduce at
least 5,000 tons of carbon dioxide and bring in $40,000 per year. Both these projects have received the
go-ahead from the DNA for PDD submission.

III. Electricity Demand Side Management Project (Supported by Canadian CIDA): Engconsult Ltd.,
Canada and Prokaushal Upodeshta Ltd., Bangladesh have jointly undertaken a study in February-March
2003 to explore and perform practical experimentation on the effectiveness of the use of Electro Flow
system in Bangladesh conditions. The study team researched the technical and financial feasibility of
Electro Flow - an Energy and Environmental Conservation system at Youngone Dying and Spinning
Industry in Dhaka Export Processing Zone (DEPZ), Savar, Bangladesh.

Electro Flow system developed by Electenergy Technologies Inc. of USA, helps industries and
governments to optimize the use of electrical energy which results in up to 34% energy saving. Electro
Flow is a microprocessor based control system, operating on ladder logic principle, will ensure
continuous monitoring of system's reactive power/power factor (X/R), and threshold current. An
automatic system, equipped with variable high and low adjustments, whose control employs data inputs
other than that of the system's reactive current component will perform during its corrective process in a
damped or tuned RLC network response to an indicative or relative manner.

An energy baseline has been calculated using past 12 months energy consumption data. The potential on-
site emission reductions associated with the installation of Electro Flow system are calculated using
emission coefficients for natural gas. Based on a preliminary assessment on the observed data in
Youngone by the system manufacturer, it is proposed that Electro Flow system has the potential to
conserve 10% energy use in the industry. And the simple payback period for this industry is calculated to
be 34 months. The final emission reduction will be calculated using the energy conservation data after the
system installation.

IV. Industrial CHP/Cogeneration Project (Supported by NEDO, Japan): NEDO of Japan is actively
pursuing Industrial Cogeneration CDM projects in Bangladesh. They have identified many

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prospective industries and are in the process of implementing a Cogeneration scheme in a textile industry.
Other Japanese companies are interested in energy efficient CDM projects.

Recommendations
The success of CDM projects in developing countries will depend on the institutional and policy
environment in which they operate. Relevant policies include those on forestry, planning, sustainable
development, rural land use, and poverty alleviation. Developing countries can prepare for the CDM by
creating an environment that may encourage appropriate land-use projects by following the given
suggestions below:

1. Setting up the minimum requirements for CDM projects, which could include meeting national
sustainable development requirements, and the procedures for submitting projects for government
approval;

2. Producing a list of non-eligible activities (e.g., some countries may wish to discourage certain
land-use activities);

3. Setting up an infrastructure for promoting and /or handling CDM projects, which could include a
plan, identifying CDM priority areas and activities (preferably integrated with national land use
plans), extension services and support, provision of information about CDM opportunities, and
investment facilitation;

4. Developing a full program to promote and actively seek out CDM projects.

5. Those who wish to develop CDM projects may include land use or forest agencies in developing
countries (or even NGOs or private sector actors). They need to be able to interact with the focal
point in the government of the country concerned to find out what national-level procedures are
in place. As few countries have put such procedures in place, land use and forestry agencies
should assist the national government to develop relevant criteria.

6. Establish a National Authority for CDM.

7. Develop sustainable development policies, plans and control systems.

8. Develop and integrate national and regional policies.

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9. Identify priorities and opportunities for projects.

10.Promote investment into land use CDM projects.

11.Develop in-country understanding of carbon flows and data availability in the land-use sector.

Conclusion

The uptake, storage and release of carbon by terrestrial vegetation look likely to have increasing
economic implications over the coming decades. The institutions responsible for land use will therefore
need to begin to integrate carbon considerations into the other objectives of land management.

Certain questions should be kept under review as the CDM market develops, to better ascertain whether
or not to encourage CDM projects in the land use sector - notably: who could benefit? By how much?
Under what conditions? Can other funds and benefits be leveraged? The CDM may not always be the best
mechanism for a land use project or for securing social, economic and environmental improvement. As
climate change awareness increases worldwide, parallel programs promoting carbon sequestration are
likely to be promoted, as in the case of carbon-funded forest conservation programs promoted by some
environmental NGOs.

Where forest goods and services are scarce, technologies and investment are lacking, or employment
opportunities are few, CDM land use projects could benefit communities - especially if there are
agreements to ensure access to these benefits by needy parts of the community. But such projects can also
have negative impacts on local food security and development options. It is too easy for governments and
corporations to assume that 'empty' land is not being used.

Furthermore, developing countries that are looking to the CDM market to promote both inward
investments and sustainable development projects, will judge the market not just by how many CDM
projects it is able to generate but also by how many countries have been able to benefit. If only a few
developing countries benefit, then it may be difficult for the rest of the developing countries to agree to
further extensions of the CDM concept in future commitment periods.

In Bangladesh the essential idea of CDM projects is to reduce GHG emission with respect to a
predetermined (agreed and approved) baseline emission. Since CDM is a project based mechanism the
fact that Bangladesh's overall energy consumption is very low should be no barrier. It is also important to

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note that CDM is concerned with emission that will occur in the future, and in that respect, the prospect
of CDM is bright because Bangladesh's commercial energy consumption is increasing at 6% per year.

Bibliography

i. Measuring the Clean Development Mechanism’s Performance and Potential by Michael
Wara.( http://pesd.stanford.edu)
ii. Clean Development Mechanism Project Opportunities in Bangladesh by Chemical
Engineering Department, Petroleum and Mineral Resources Engineering Department, Bangladesh
University of Engineering and Technology, Dhaka, Bangladesh.

iii. CDM Project Potential in the Poultry Waste Management Sector in Bangladesh by Clean
Development Mechanism of Bangladesh.

iv. CDM User’s Guide of UNDP
http://www.undp.org/seed/eap/html/climate.htm#cdm
v. Pembina Institute CDM Guide Book
http://www.pembina.org/pdf/publications/user_guide_2nd_ed.pdf
vi. UNCTAD Implementation Guide to CDM
http://www.unctad.org/en/docs//ditcted20031_en.pdf
vii. http://unfccc.int/resource/convkp.html

viii. http://www.wikipedia.com

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