Dysfunctional delegation: why the design of the CDM's supervisory system is fundamentally flawed

Emma Lund

Climate Policy, 2010, vol. 10, issue 3, 277-288

Abstract: The supervisory system of the Kyoto Protocol's Clean Development Mechanism (CDM) has been heavily criticized for not being able to guarantee the additionality of projects. Since neither the sellers nor the buyers of emission reduction credits in the CDM have an interest in the emissions reductions per se , but simply the right to them, a credible supervisory system is necessary to uphold the mechanism's integrity. In the CDM, the on-the-ground supervision of projects has been delegated to the Designated Operational Entities (DOEs), which are private companies accredited by the CDM Executive Board (EB) to perform this task. But, as the DOEs are selected and paid by the project developers themselves, they have an economic incentive to let projects through to gain a favourable reputation among clients. Taking its starting point in delegation theory, this article argues that the supervisory system of the CDM is fundamentally flawed, since its design is incompatible with basic theoretical insights from this literature. It concludes that a thorough reform of the CDM's supervisory system is needed in order to increase its credibility. First, the EB should select and pay the DOEs. Second, the current rules for determining additionality should be replaced so as to reduce the arbitrariness of decisions.

Date: 2010
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DOI: 10.3763/cpol.2009.0031

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