Clean Development Mechanism (CDM) is a sole instrument based on cooperation and understanding among the nations for taking up a new outlook for monetary activities aiming at protecting the world eco-system. It is one of the flexibility methods defined in the Kyoto Protocol (IPCC, 2007) that grants for emissions reduction projects which produce Certified Emission Reduction units which may be traded in emissions trading schemes.
The CDM is defined in Article 12 of the Protocol, and is proposed to meet two objectives:
- To aid developing countries in attaining sustainable development & in contributing to ultimate objectives of United Nations Framework Convention on Climate Change (UNFCCC )
- To assist developing countries in achieving compliance with their qualified emission limitation & reduction commitments. "Annex I" parties are those countries that are scheduled in Annex I of the treaty, and are the industrialized countries. Non-Annex I parties are developing countries.