The area in which the Kyoto Protocol itself may have greatest implications for technology transfer is in its establishment of the project based mechanisms, Joint Implementation (JI) (Article 6) and the Clean Development Mechanism (CDM) (Article 12). These allow investments in projects that reduce or avoid emissions to generate emission credits (ERUs or CERs respectively), which may be used to contribute towards compliance by an Annex I Party. Features that distinguish these mechanisms from emissions trading are summarised in Table 3.2. This creates an incentive towards climate-friendly investments. In addition, the CDM specifies that a part of the proceeds shall be used to assist vulnerable developing countries adapt to the effects of climate change. In these respects, such mechanisms may offer significant contributions towards technology transfer.

The CDM, if well structured, could be a vehicle for transferring ESTs. Though no specific provision makes reference to technology transfer, a number of features make the CDM unique. First, the clean development mechanism invites Annex I Parties to work with developing countries to further sustainable development and the overall objectives of the Climate Convention. This is possible largely only by the transfer of ESTs. Assisting Annex I Parties to achieve their emission reduction obligations through a transfer of "credits" is another objective of the CDM.
Secondly, the CDM is project based. Certified emission reductions may be generated through the investment in concrete projects and based on measurable, certifiable emission performance.

Thirdly, the provisions for governance of the CDM are more specific than for the other mechanisms. The CDM is to be supervised by an executive board, which is likely to be a sub-group of Parties to the Protocol, perhaps with inputs from other constituencies. This will provide oversight and guidance to the implementation of the CDM. The Protocol also calls for independent auditing and verification of project activities. These provisions reveal an effort to ensure transparency and credibility in the final results, and the need for agreement on standardised procedures of performance on which to base certification. They make the design of the mechanism clearly multilateral in nature, involving decisions and consensus among multiple Parties.

Some initial ideas on the CDM are starting to emerge from a variety of new literature and exchanges that have taken place since Kyoto (Aslam 1998 a & b; OECD, 1998a; 1999, Goldemberg, 1998, TERI 1998):

• The CDM is a means to build trust and strengthen capacity. It should strengthen working relations and understanding among partners, the private sector, non-governmental organisations, and governments at various levels to enhance technology cooperation. Project-based crediting should lead to tangible investments and development of local capacity to maintain the performance of these investments. These projects should incrementally assist developing countries to achieve multiple sustainable development objectives (economic development, improvement of local environmental quality, minimisation of risk to human health from local pollutants, and reduction of greenhouse gases). Careful project screening and selection, including host community decision-makers, will assist in multiple benefits for all participants.
• The need to design simple, unambiguous rules that ensure environmental performance in the context of sustainable development while also favouring investment. The multilateral oversight and governance provisions of the mechanism, and the project basis of transactions, will raise the transaction costs of investment in CDM projects as compared to mitigation reduction through other more conventional means (e.g. local options or even within other Annex I countries). This increases the complexity of the transaction and removes a portion of the economic benefit that might otherwise be attained. Critical questions under this heading have to do with how to determine the emissions additionality of proposed projects as well as the baseline against which to assess performance and establish transferable "credits".

Much about the design and governance of the CDM remains to be resolved. One important distinction is between "bilateral" or "portfolio" approaches (Table 3.3). The bilateral approach is closest to joint implementation programmes where the host country negotiates directly with the investor about the terms of the contract. The portfolio approach would allow host (developing) countries to advance bundles of possible projects that fit with their own sustainable development objectives. Some authors (Siniscalco, 1998; Grubb et. al., 1999) argue that both models will be needed, depending on the type of project involved.

A practical understanding of one way the CDM may relate to technology transfer may be found in looking at progress made to date by some countries in establishing technology priorities for investments likely to emerge under the Convention and the Protocol. The Indian government, for example, has identified three different types of technologies as priorities for CDM investment (TERI, 1998): grid-connected photovoltaics; advanced fuel cells; and biomass for power generation. With respect to baselines, the Indian government has also identified three types: increases in energy efficiency, renovation and modernisation; introduction of new technologies; and projects that are currently subject to government incentives and subsidies (hence additional).

Presumably once a host country has its own vision of what sustainable development entails given its own national circumstances, it could develop broad guidance on types of CDM projects that would be acceptable to it. Such guidance could vary from country to country and possibly by region within a country, depending on a variety of different parameters (e.g. resource endowment, natural environment, geography, industrialisation, urbanisation and demographic trends).

This guidance might resemble a national "technology needs assessment," one of the ideas that has begun to emerge from discussions under the Convention on technology transfer (UNFCCC, 1998a and van Berkel et al., 1998). Once a country has established a vision of its needs for sustainable development and technology, practical guidance on project types could be developed to fit these objectives. A portfolio of projects could be offered to international investors, giving more control to host countries to ensure the value of CDM projects over time (Yamin, 1998).

An international gathering hosted by the OECD offered some interesting perspectives and words of caution with respect to the CDM (OECD, 1999): Participants highlighted the potential role of the clean development mechanism for fostering climate-friendly technology cooperation and urged greater clarity on these issues. They also cautioned against the mechanism being used by investors to compete for the cheapest abatement projects, which could lead to uncoordinated and ultimately counter-productive efforts (OECD, 1998b).

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