Effectiveness of subsidies for the Clean Development Mechanism: Past experiences with capacity building in Africa and LDCs

Abstract

Given the lack of Clean Development Mechanism (CDM) activities in least developed countries (LDCs), subsidies for CDM projects have been suggested as a remedy. To date, subsidies spent in the CDM context have been limited to capacity building. Donor agencies have provided close to EUR45 million for awareness raising, institutional capacity building and project development in Africa and LDCs over the last 10 years, which equals about 8% of the total CDM revenues in these countries. Per registered project, the implicit subsidy reaches almost EUR1 million. This article assesses these CDM subsidies with regard to their effectiveness in mobilizing institutional set-up and project development. Targeted capacity building programmes, such as those focused on establishing a Designated National Authority, have been successful, but project development support did not mobilize significant numbers of CDM projects in most LDCs. Donor assistance was more effective when it assisted the whole process of CDM project development and not just a part of it. Overall, capacity building subsidies are a necessary but not a sufficient condition for mobilizing CDM projects. They cannot stand in for the lack of domestic capital required to set up projects.