The drivers and outcomes of the clean development mechanism in China

The Clean Development Mechanism (CDM) is a flexible market mechanism intended to reduce greenhouse emissions and promote sustainable development. China hosts a third of all registered CDM projects, and generates two-thirds of all certified emissions reductions. Understanding the political economy of the CDM in China is therefore of critical importance in determining whether the CDM is an effective instrument to promote sustainable development and mitigate climate change. This paper discusses the nature and dynamics of CDM project development in China by analysing the 579 registered CDM projects operating in China as of 1 July 2009. The predominant activities are hydroelectric and wind power projects, with foreign involvement largely by European firms specializing in emerging carbon markets. The sustainability outcomes of projects in China are primarily economic, with environmental benefits largely restricted to cleaner production. The results suggest that the CDM is largely being employed as an ancillary device to attract foreign investment and further China's existing development agenda. We argue that the these results indicate the need for further reform of the CDM to achieve desired outcomes, and that China's approach to the design of integrated policy portfolios might be an example of how to achieve this.