A report, according to UN revealed that the world's only global system of carbon trading, which specifically helps developing countries to achieve sustainable development and assists them in complying with their emission reduction targets, is collapsing and needs to be rescued. An expert panel appointed by UN warned that the prices of the climate credits is dropping as countries failed to accomplish their future emission reduction commitments,
and it would collapse if countries don't make any efforts to boost the climate credits market. It will put future flows of finance at risk, until the system adapts to new political and market conditions.
The Clean Development Mechanism (CDM) was one of the key components in the Kyoto Protocol (IPCC, 2007), a protocol of United Nations Framework Convention on Climate Change (UNFCCC). The UN-established Kyoto Protocol follows the basic principle of UNFCCC, 'common but differentiated responsibility' and helps 37 industrialized countries to achieve emissions reduction targets. To help developing countries achieve those targets, the protocol introduced three flexible mechanisms - the Clean Development Mechanism (CDM), Joint Implementation (JI) and International Emissions Trading (IET).
The CDM is one of the most flexible mechanisms defined under the Kyoto Protocol, which aims to invest in sustainable development projects to reduce greenhouse gas emissions in poor or developing countries. It allows countries with emission-reduction commitment to fund projects in developing or poor countries. More than 1,000 CDM projects have qualified for the carbon credits so far, and billions of dollars have been raised through the system for the projects like solar panels and windfarms. But lack of government guarantees to continue with the Kyoto Protocol's mechanism and spiraling prices of CDM credits has created some serious issues about whether the system will survive.
Concerns have also been raised related to the weak carbon market and governments are not taking this critical situation seriously, said Joan McNaughton, a former UK civil servant in a statement. CDM has helped countries to cut around one billion tons of greenhouse gas emissions, resulting in huge funds to developing countries over the past decade and if the CDM collapses, it would be much difficult in future to raise funds for the developing and poor countries to cut greenhouse gas emissions, said the panel.