CDM Background

The United Nations Framework Convention on Climate Change (UNFCCC) was one of the key outcomes of the United Nations Conference on Environment and Development (UNCED), in Rio de Janeiro in 1992. It entered into force in March 1994 and has been ratified by 190 countries. The stated objective of the Framework Convention was to stabilise greenhouse gas (GHG) concentrations in the atmosphere at levels that would prevent dangerous human interference with the climate system. The Convention divides countries into two groups:

  • Annex I Parties, the industrialised countries who have historically contributed the most to climate change
  • non-Annex I Parties, which include primarily the developing countries

The Parties to the Convention meet once a year at the Conference of Parties (COP) to discuss and negotiate measures against global climate change. At COP-3, held in Kyoto, Japan, in 1997, the Kyoto Protocol was adopted, which set legally binding quantitative targets for 38 industrialised countries (including 11 emerging market economies). These targets amount, on average, to a 5% reduction (from 1990 levels) of carbon emissions during the “first commitment period” of 2008-2012.

In June 2001, international climate change negotiations in Bonn, Germany, resulted in a political agreement that set forth broad-brush guidelines on key issues of the Kyoto Protocol including the flexible mechanisms, "sinks," funding, and compliance. Whilst this agreement ensured continued momentum in the negotiations, it left many details to be finalized. UNFCCC COP-7, held in Marrakech, Morocco, in October of 2001 was tasked with finalizing the underlying legal texts for the Bonn Agreement and setting in place the accounting system for the Kyoto Protocol. This task was completed and the finalized texts are all contained in the 245-page Marrakech Accords.

The Kyoto Protocol recognises six main greenhouse gases, each with different impact on the global climate. The common ‘currency’ of the Kyoto Protocol targets is one metric tonne of carbon dioxide equivalent (tCO2e). Each of the other greenhouse gases can be expressed in this form (on a weight-for-weight basis) by multiplying by its Global Warming Potential (GWP), as shown in the table below:

Greenhouse Gas

GWP (100 years)
Carbon dioxide (CO2) 1
Methane (CH4) 21
Nitrous oxide (N20) 310
Hydro-fluorocarbons (HFCs) 150−11,700
Perfluorocarbons (PFCs) 6,500−9,200
Sulphur hexafluoride (SF6) 23,900


The Clean Development Mechanism (CDM) is a mechanism whereby an Annex I party may purchase emission reductions that arise from projects located in non-Annex I countries. The carbon credits that are generated by a CDM project are termed Certified Emission Reductions (CERs) , expressed in tCO2e.