Making Markets Work: A Review of CDM Performance and the Need for Reform

Abstract

The Kyoto Protocol's Clean Development Mechanism (CDM) is the first global market mechanism in international environmental law. It has been much lauded for its success. However, doubts whether the CDM governance structure is robust enough to meet the challenges of regulating an international market mechanism in the long term are emerging. The Executive Board (EB)’s decision-making practice is often not predictable and many of its decisions have come as a surprise to project participants and technical project experts. Members of the EB often have multiple responsibilities which result in a complicated situation of conflicting interests. Finally, private sector participants in the CDM who have been aversely affected by EB decisions have no right of recourse and essentially little if any due process rights. This article argues that incorporating mechanisms to promote procedural fairness and creating an appeals process for aggrieved CDM participants will promote transparency and accountability in the CDM decision-making processes. This is essential for the sound operation of the CDM regulatory regime which will have a direct positive effect on the international carbon market. After conducting a comparative analysis of other regimes in which international bodies take decisions that directly affect individuals, most notably the system of targeted sanctions of the UN Security Council and the Anti-Doping Regime, as well as examining the World Bank Inspection Panel and the European Ombudsman as models of international review mechanisms, the authors set out proposals for reform of the CDM, including professionalizing the EB and the panels, securing better and more consistent funding, the elimination of political interference, and the introduction of administrative law-like processes.