The Growing Clean Development Mechanism (CDM) Market to Usher in a Low-carbon Economy

The Growing Clean Development Mechanism (CDM) Market to Usher in a Low-carbon Economy

CDM projects cover various categories ranging from renewable energy projects like biomass power generation, wind farms, small-scale solar to energy efficiency projects in industries like cement, aluminum, and fertilizers. The CDM mechanism enables industrialized countries to achieve compliance with their emission reduction targets under the Kyoto Protocol by purchasing CER credits from emission reduction projects in developing countries.

The Global CDM Market is estimated to be valued at US$ 225.43 Billion in 2024 and is expected to exhibit a CAGR of 8.5% over the forecast period 2024 to 2031.

Key Takeaways

Key players operating in the CDM market are World Bank, Gold Standard Foundation, Verra, EcoSecurities, SouthSouthNorth, ClimateCare, Carbon Trust, Deloitte, Ernst & Young (EY), KPMG, PwC (PricewaterhouseCoopers), Natural Capital Partners, Sustainable Development Solutions Network (SDSN), and International Emissions Trading Association (IETA). These players are focused on developing large-scale projects, new standardized baselines, programmatic CDM, and transitioning to next-generation carbon markets. The growing demand for carbon credits from different sectors and countries presents a huge business opportunity for players in the market. As the Paris Agreement comes into force, more countries are exploring opportunities to expand their CDM portfolio through capacity building programs, technical assistance, and south-south cooperation.

Market Drivers

Stringent emission norms to curb climate change is one of the major factors augmenting the demand for cost-effective mitigation mechanisms like Clean Development Mechanism Market Size . Commitments made by countries under the Paris Agreement to transition to low carbon pathways and achieve net-zero emissions by mid-century are expected to accelerate the implementation of large-scale CDM projects. Growing interest by private sector entities in voluntary carbon markets and internal carbon pricing initiatives is fueling new project development and credit procurement deals in the market. Adoption of carbon offsetting programs by organizations across industries to meet their science-based emissions reduction targets acts as a significant driver.

Market Restrains

A highly bureaucratic and lengthy UNFCCC project approval process involving Designated National Authorities (DNA) poses challenges for small project developers. International collaboration issues and lack of coordination between countries limit the scope and potential of cross-border CDM programs. Development of cost-effective alternatives like Joint Crediting Mechanisms (JCM) and bilateral offsetting programs provide competition to the CDM market. Uncertainties pertaining to the role of carbon pricing and usage of pre-2020 credits could create short-term headwinds for project developers and credit buyers. Complex rules regarding additionality demonstration, baseline setting, and leakage risks have constrained the supply of certain project categories.

Segment Analysis
The Clean Development Mechanism (CDM) market can be segmented based on technology, type of services and geography. Based on technology, the market is dominated by renewable energy projects which account for more than 50% of all CDM projects. Renewable energy projects like wind, solar and hydropower offer significant carbon credits and have gained global prominence in climate change mitigation efforts. By type of services, the CDM market is dominated by carbon offset services where companies/governments purchase carbon offsets from emission reduction projects in developing countries to meet their emission targets.

Global Analysis
Regionally, Asia leads the Clean Development Mechanism Market Size And Trends with China accounting for nearly half of the total volume of issued CERs globally. Other major Asian markets include India and South Korea. China's dominance can be attributed to strong government support for renewables and vibrant project development activity. Europe is the second largest regional market driven by the European Union Emission Trading Scheme. Countries like Germany, Netherlands and Spain are prominent buyers of international carbon credits to meet their emission compliance needs. The demand is expected to remain high from these developed regions as they tighten decarbonisation targets over the coming years in line with Paris Agreement goals.

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Ravina Pandya, Content Writer, has a strong foothold in the market research industry. She specializes in writing well-researched articles from different industries, including food and beverages, information and technology, healthcare, chemical and materials, etc. (https://www.linkedin.com/in/ravina-pandya-1a3984191)
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