Clean Development Mechanism: What is it and how does it work?

clean energy

This mechanism works as a strategy to encourage generation of clean energy, in a model in which the parties involved intend to reduce carbon emissions.

The world's energy system is still based mostly on the use of fossil fuels. However, the economy needs to move towards decarbonization, which means that countries and businesses must gather forces to reduce greenhouse gas emissions. Decarbonizing the economy involves strategies to encourage generation of clean energy, such as the Clean Development Mechanism (CDM).

What is CDM?

The Clean Development Mechanism was established as flexibilization so that reductions in greenhouse gas emissions could be made after negotiations, i.e., emissions that are prevented may offset those that take place. For instance, we consider that by generating energy from sources such as hydraulics and wind, we avoid the use of thermal sources that release gases such as carbon dioxide in the atmosphere.

The mechanism was established in the Kyoto Protocol in 1997 to help countries meet their emission reduction targets. On a voluntary basis, carbon credits issued from CDM projects can also be marketed by companies and people wishing to offset their CO₂emissions.

How does CDM work?

The Clean Development Mechanism allows countries and companies committed to reducing greenhouse gases to invest in emission reduction projects.

These carbon financing mechanisms are carried out via projects financed with the aim of minimizing carbon emissions, in which renewable energy plays a key role.

Approved CDM projects produce Certified Emission Reductions (CER's), which can be negotiated with companies, industries or countries that are not meeting their own CO₂emission targets.

Infographic: Clean Development Mechanism [PDF]

Carbon Credits

Carbon credits are measuring units that correspond to one ton of carbon dioxide (t CO2e). These measures are intended to calculate the reduction of greenhouse gas (GHG) emissions and their marketing value.

In each country, the carbon market is regulated by different laws, such as Brazil, which regulates it by means of Decree No. 5,882 of 2006. Basically, the carbon market is characterized by the sale of carbon credits between a country that has them after having reduced its carbon dioxide emissions and another country that needs to reduce its emissions but has not met its targets.

Teles Pires Hydroelectric Dam: Neoenergia's CDM Project

Neoenergia has a CDM project by means of its Teles Pires hydroelectric plant (PA), in which the clean energy produced by the project generates carbon credits – Certified Emission Reductions (CERs) – which can be marketed to companies, as a way to compensate for the greenhouse gas (GHG) emissions that such companies produce.

In the second half of 2020, the plant negotiated the carbon credits issued by energy production in the period between November 2015, when Teles Pires went into operation, and February 2017. In all, the undertaking sold 1,473,640 tCO2e, in the amount of R$ 2,331,676.50, to companies in Brazil, India and the Netherlands.

Commitment to Climate Change

The Neoenergia Group addresses climate change in its business strategy through its Climate Change Policy and the commitment to the Sustainable Development Goals (SDGs), particularly to SDGs 13, Action Against Global Climate Change.

The strategy to fight climate change was defined under the Paris Agreement, in which Brazil committed to reduce its greenhouse gas emissions by 37% by 2025 over its 2005 level, and reach 43% in 2030. In order to achieve the goal, among other measures, Brazil intends to increase to 45% its share of renewable sources in the energy mix and increase the energy efficiency by 10% in the electricity sector.

Neoenergia is fully engaged in this agreement and addresses climate change not only as a risk factor, but also as an opportunity to profit from by means of adaptation and mitigation and actions along the transition to a low-carbon economy.

The diversification of the company's generation assets – combining water, wind and thermal sources – enables better management of the risks of climate change.

The intensity of the company's CO2 emissions in 2019 was 70 g CO2/kWh. This figure shows the company's contribution to reach the global target of the Iberdrola Group, which is to attain less than 150 gCO2/kWh by 2030.

Learn about other Neoenergia's initiatives on the topic in the Company's Sustainability Report .