The Clean Development Mechanism (CDM) and Joint Implementation (JI) are project-based offset mechanisms under the Kyoto Protocol, a legally binding international treaty to reduce global greenhouse gas (GHG) emissions that was negotiated in 1997 and entered into force in 2005. Under the treaty, a group of industrialized countries and countries with economies in transition (EIT) have legally binding commitments to reduce their overall GHG emissions to 5% below 1990 levels during the period 2008–2012. Each country within the group also has a separate target that ranges between an 8% reduction to a 10% cap on increases in emissions (UNFCCC, 1997).
JI is the instrument for offset projects taking place within countries with binding emission commitments under the Kyoto Protocol, while the CDM is for offset projects in countries without such commitments, that is, most developing countries. Both the CDM and JI provide Kyoto countries with the flexibility to meet a part of their emission target obligation in a more cost-effective manner by purchasing offset credits generated by GHG abatement projects in other Kyoto countries. However, the Kyoto Protocol requires that the use of the offset and other flexible mechanisms such as emission trading be supplemental to domestic action taken by countries to meet their commitments, and it is left to each country to decide the extent to which these mechanisms may be used (UNFCCC, 1997). Furthermore, in addition to the objective of economic efficiency, the CDM has the objective of promoting sustainable development and technology transfer in host countries.
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