The CDM was set up under the Kyoto Protocol (3) to the United Nations Framework Convention on Climate Change. The CDM enables developing countries to attract investment for projects involving clean energy and other measures that reduce or sequester greenhouse gas emissions.

Under the CDM, valid reductions in greenhouse gas emissions (or increased sequestration) resulting from CDM projects in a developing country can yield credits. The Kyoto Protocol allows developed countries to use credits from these projects to count towards meeting their Kyoto Protocol targets to limit greenhouse gas emissions. The rationale for this is that emission reductions anywhere on the planet provide an equivalent benefit in mitigating climate change. In many cases, it is more cost-effective to reduce emissions in developing countries than in developed countries.

The CDM provides an incentive for governments and companies in developed countries to invest in projects that reduce or sequester greenhouse gas emissions in developing countries. Credits resulting from CDM projects are expected to become a valuable resource that can be sold on a new international market for greenhouse gas credits.

CDM ELIGIBILITY REQUIREMENTS

National requirements

1. A developing country can be a location for CDM projects if it fulfills the following requirements:
2. the government ratifies the Kyoto Protocol
3. the government designates a national authority for the CDM (1.3)
4. Expressed willingness to voluntarily participate in a CDM project activity;
5. Set up, or is in the process of setting up, a CDM office;
6. Provided national communications to the UNFCCC;

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