Information provided below might help you better understand the Clean Development Mechanism (CDM).

CDM will bring “additional capital and technology” for the GHG emission reduction projects which have “additionality”.“Additional capital and technology” refers to capital and technology that enterprises gain at a comparatively low cost, which can be neglected under certain circumstances.

Mechanism of CDM
The Clean Development Mechanism (CDM) is an arrangement under the Kyoto Protocol allowing industrialized countries with a greenhouse gas reduction commitment (so-called Annex 1 countries) to invest in emission reducing projects in developing countries as an alternative to what is generally considered more costly emission reductions in their own countries.

The product/merchandise in this transaction is called Certified Emission Reductions (CERs).

United Nations Framework Convention on Climate Change
The United Nations Framework Convention on Climate Change (UNFCCC or FCCC) is an international environmental treaty produced at the United Nations Conference on Environment and Development (UNCED), informally known as the Earth Summit, held in Rio de Janeiro in 1992. The treaty aimed at reducing emissions of greenhouse gas in order to combat global warming.

The treaty as originally framed set no mandatory limits on greenhouse gas emissions for individual nations and contained no enforcement provisions; it is therefore considered legally non-binding.
Rather, the treaty included provisions for updates (called "protocols") that would set mandatory emission limits. The principal update is the Kyoto Protocol, which has become much better known than the UNFCCC itself.

The FCCC was opened for signature on May 9 1992. It entered into force on March 21 1994. Its stated objective is "to achieve stabilization of greenhouse gas concentrations in the atmosphere at a low enough level to prevent dangerous anthropogenic interference with the climate system."

Annex I and Annex II Countries, and Developing Countries
Signatories to the UNFCCC are split into three groups:
－Annex I countries (industrialized countries)
－Annex II countries (developed countries which pay for costs of developing countries)
－Developing countries.

Annex I countries agree to reduce their emissions (particularly carbon dioxide) to target levels below their 1990 emissions levels. If they cannot do so, they must buy emission credits or invest in conservation. Developing countries have no immediate restrictions under the UNFCCC.

Avoids restrictions on growth because pollution is strongly linked to industrial growth, and developing economies can potentially grow very fast. It means that they cannot sell emissions credits to industrialized nations to permit those nations to over-pollute. They get money and technologies from the developed countries in Annex II. Developing countries may volunteer to become Annex I countries when they are sufficiently developed. Developing countries are not expected to implement their commitments under the Convention unless developed countries supply enough funding and technology, and this has lower priority than economic and social development and dealing with poverty.

Kyoto Protocol
The Kyoto Protocol to the United Nations Framework Convention on Climate Change is an amendment to the international treaty on climate change, assigning mandatory emission limitations for the reduction of greenhouse gas emissions to the signatory nations.

The objective is the "stabilization of greenhouse gas concentrations in the atmosphere at a level that would prevent dangerous anthropogenic interference with the climate system."

As of December 2006, a total of 169 countries and other governmental entities have ratified the agreement (representing over 61.6% of emissions from Annex I countries). Notable exceptions include the United States and Australia. Other countries, like India and China, which have ratified the protocol, are not required to reduce carbon emissions under the present agreement.
At its heart, the Kyoto Protocol establishes the following principles:

• Governments are separated into two general categories: developed countries, referred to as Annex I countries (who have accepted GHG emission reduction obligations and must submit an annual greenhouse gas inventory); and developing countries, referred to as Non-Annex I countries (who have no GHG emission reduction obligations but may participate in the Clean Development Mechanism).
• Any Annex I country that fails to meet its Kyoto obligation will be penalized by having to submit 1.3 emission allowances in a second commitment period for every ton of GHG emissions they exceed their cap in the first commitment period (i.e., 2008-2012).

• By 2008-2012, Annex I countries have to reduce their GHG emissions by an average of 5% below their 1990 levels (for many countries, such as the EU member states, this corresponds to some 15% below their expected GHG emissions in 2008). While the average emissions reduction is 5%, national limitations range from 8% reductions for the European Union to a 10% emissions increase for Iceland; but since the EU intends to meet its target by distributing different rates among its member states, much larger increases (up to 27%) are allowed for some of the less developed EU countries. Reduction limitations expire in 2013.
• Kyoto includes "flexible mechanisms" which allow Annex I economies to meet their GHG emission limitation by purchasing GHG emission reductions from elsewhere. These can be bought either from financial exchanges (such as the new unrelated-to-Kyoto EU Emissions Trading Scheme) or from projects which reduce emissions in non-Annex I economies under the Clean Development Mechanism (CDM), or in other Annex-1 countries under the JI.
• Only CDM Executive Board-accredited Certified Emission Reductions (CER) can be bought and sold in this manner. Under the aegis of the UN, Kyoto established this Bonn-based Clean Development Mechanism Executive Board to assess and approve projects (“CDM Projects”) in Non-Annex I economies prior to awarding CERs. (A similar scheme called “Joint Implementation” or “JI” applies in transitional economies mainly covering the former Soviet Union and Eastern Europe).

Basic Requirements of CDM Project:

• To participate voluntarily;
• To generate emission benefits which is real, sustainable and measurable;
• Additionality is established.

Conference of the Parties（COP）： The Conference of the Parties (COP) is the "supreme body" of the Convention, that is, its highest decision-making authority. It is an association of all the countries that are Parties to the Convention.

The COP is responsible for keeping international efforts to address climate change on track. It reviews the implementation of the Convention and examines the commitments of Parties in light of the Convention’s objective, new scientific findings and experience gained in implementing climate change policies. A key task for the COP is to review the national communications and emission inventories submitted by Parties. Based on this information, the COP assesses the effects of the measures taken by Parties and the progress made in achieving the ultimate objective of the Convention.

The CDM Executive Body (EB): is the meeting of the representatives of the Parties to the Convention. It is responsible for taking action to implement the fundamental principles of the Convention, managing the registration of CDM projects, including the issuance of new CERs, setting up financial accounts to manage CERs. EB is normally comprised of 10 specialists.

Host Countries are mainly in charge of supervising whether certain CDM projects meet the requirements of sustainable development, and whether those projects hosted in their countries can be regarded as CDM projects. The Office of the National Coordination Committee on Climate Change of the National Development and Reform Commission (NDRC) serves as the National Executing Agency of the People’s Republic of China.

Designated Operational Entity（DOE）is independent organization designated by EB which is in charge of the validation of CDM projects to ensure the project results in real, measurable, and long-term emission reductions. It is also in charge of the issuance of certification of emission credit and CERs.

Project Participants, also known as parties participating in the CDM project activities, refers to private/public entities approved by parties of CDM. (e.g. Project Entity )