III. The Clean Development Mechanism.

    A. Generally

    Article 12 of the Kyoto Protocol states:

    Thus, the Kyoto Protocol contemplates that Annex I countries will achieve some of their emissions abatements through projects with developing countries. Such projects allow developing countries to participate in the Protocol and may involve the transfer of either technology or human resources.[32] The reasoning behind these projects is relatively simple. The basic rationale is that an investor in a developed country where the marginal cost of abatement is high can engage in projects in developing countries where the marginal cost of abatement is much lower and acquire an emissions reduction credit to help offset emissions in the investor's home country. Because climate change is a global problem, where the investor engages in abatement activities should not matter. By allowing investors to participate in projects where the marginal cost of abatement is lower, the overall efficiency of abatement efforts is increased: investors receive more abatement with a smaller expenditure of resources. For example, "[i]t is more economically efficient to allow developed countries to acquire emissions credits from power plant improvements in nations like China because a dollar buys ten times more GHG [emissions reduction] than in developed countries."[33] In order for these projects to be effective, however, more than the relative costs of abatement must be considered. The marginal differences between these abatement costs must also be sufficiently large to "offset the transaction costs incurred in implementing the program."[34] Fortunately, the data on these projects suggests that there are a considerable number of low cost abatement projects in developing countries. [35]

    The CDM provides benefits to both developing and industrialized countries. Developed countries have an incentive to invest in clean technology projects in developing countries to receive emission reduction credits, and developed countries receive the capital necessary for sustainable development.[36] The CDM

    Furthermore, the CDM will "allow an early start on emissions reductions in those developing countries that will soon account for a majority of the world's GHG emissions."[38] These investments to encourage abatement in developing countries can come from many sources, whether they be private, governmental, or nongovernmental organizations ("NGO").[39] By allowing developing countries to become more efficient power producers, the CDM also ensures that these countries will become more effective competitors in the global marketplace.

    Developing countries are further benefited because the CDM contains a fund "to assist developing country Parties that are particularly vulnerable to the adverse effects of climate change to meet the costs of adaptation."[40] The fund is supported by a portion of the proceeds from CDM projects. By helping finance adaptation efforts, the perceived inequities of developing countries suffering from a problem historically caused by developed countries may be partially offset because Annex I countries are essentially helping developing countries cope with any consequences of climate change while investing in sustainable growth in those developing countries.