CDM Basics

CDM is a mechanism to ensure that Annex I countries can meet their emission reduction target in a cost effective way by financing GHG emission reduction in developing countries. If an Annex I country finance an emission reduction project in a Non-Annex I country, the project participants will be granted "Certified Emission Reductions" (CERs), also called carbon credits. The number of CERs granted reflects the emission reduction; an emission reduction equal to one metric ton of CO2 gives one CER. The CERs are tradable, and they can be used to supplement national GHG emission reductions.

Annex I countries can not base all their emission reductions on CERs. The ETS limits emission reductions covered by CERs to 10 to 30 percents; the rest must be real emission reductions in the home country. There are two reasons for this limit:
(1) to ensure that there are not too many CERs on the market and
(2) to ensure that Annex I countries do not base all their emission reduction on buying CERs without reducing emissions at home.

Only projects that contribute to sustainable development in developing countries are accepted as CDM projects.