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the EU ETS) and those who have allowances or credits to sell. This sort of operation looks much like any other financial market - a trader sitting with three or four computer screens and a couple of telephones, the screens relaying information about buyers and sellers and what they want and are offering, about average prices of sales and the phone there for negotiation between the two parties.

The principal products in these markets are the EUAs (see the next chapter on emissions trading) and those in what is called the 'secondary CDM market' - that is those credits created by CDM projects that are then sold on to companies that need credits. Most project developers do not themselves need allowances, they just realise there is money to be made and they have an expertise in putting projects together, and then sell on the credits through this secondary market. They also organise these markets through a series of auctions, where buyers present sealed bids and transactions are all decided at a single point in time.

But CantorCO2e is also involved in directly putting together CDM project developers in the South with investors in the North. In this, its principal expertise is its networking skills and experience, its capacity to know who is putting projects together and who might want to finance them. The nature of the projects varies considerably with the range of possible CDM projects.

Energy for Sustainable Development (ESD) is a consultancy. It started in 1989 as a non-profit company working mostly on World Bank small-scale sustainable energy projects. In 1999, it got into the joint implementation business when it realised that its expertise would enable it to develop CDM projects. It has become a project originator, working directly with the project developers in the South to make the projects work. The consultancy works through the project cycle, from initial idea, to the PDD, through to selling the credits. An interesting part of ESD's work is that it makes its money by taking a cut of the CERs from the project developer, instead of directly being paid in hard currency. It then realises that money by selling these credits in the secondary CDM market, through brokers such as CantorCO2e.

connecting to the south

All of this relies on internationally connected carbon entrepreneurs in the global South seeking to position action on climate change as an investment opportunity. Market makers in the South have wasted no time in seeking business opportunities though collaborations and partnerships with their equivalents in the North. Chambers of commerce, sector-based business associations and banks have been leading the charge to connect projects in the South with investors in the North, running seminars and training events and networking at 'Carbon Expo' conferences, persuading investors of the merits of investing in their country.

There has been a proliferation of business organisations, intermediary groups and climate entrepreneurs offering training and services to companies wanting to have their factories upgraded, seeking access to cleaner technologies or just wanting to get money for nothing: compensation for not undertaking actions they claimed they had planned to, and selling this as an emission reduction. In fact, one problem governments in the South have had is dealing with unrealistic expectations about the money to be made from CDM. One member of a DNA told us he had meetings with people claiming to be students interested in the CDM requesting information about how the process worked. They then posted this information, inaccurately, the following day on a company website claiming to offer expert services in project development to the business community! Inflated expectations about the CDM bringing about a gold rush of money from North to South, creating 'Robin Hood' redistribution from rich to poor, proved inflated and premature. Many ill-prepared projects rushed through the process have failed to meet basic criteria of additionality and were thus rejected by the CDM EB, having a negative effect on business confidence in the market. We will return to the question of 'cowboy' climate capitalist, later.

conclusions

The Clean Development Mechanism has certainly been tremendously successful in at least three ways. First, it has generated great interest by investors, project developers and traders in the new commodity, the Certified Emissions Reduction or CER, which it has created.

Second, it has also created great enthusiasm amongst the UN climate change secretariat and many national governments because it has expanded much faster than its designers anticipated. This fact is taken as a sign of its value. It has, as people in the policy world say, traction.

Third, and perhaps most important, it has transformed the North-South dynamic in climate negotiations. At the time of the Rio summit in 1992, there was a legitimate fear that money to support action by the South on climate change had to be 'additional' to existing development aid budgets rather than drawn from them. This fear continues in the context of the Copenhagen Accord of 2009. But now, because of the CDM, climate change is seen by some as a welcome opportunity to try to redistribute resources in favour of the global South. So far so good, we might conclude. Why shouldn't people that have contributed very little to global warming make some money from those who don't want to take actions themselves? In a way it could provide a form of de facto compensation for tolerating some of the worst effects of climate change.

But, in practice, the CDM has not delivered the benefits that many hoped for and expected. Critics, as we will see in Chapter 8, continue to see it as a fraudulent mechanism that lets rich countries off the hook. Despite its achievements then, the future of this sort of institution is uncertain amid proposals for its reform, overhaul or abandonment. Though economists prefer not to admit it, markets respond to signals from states, the same states that create markets and enforce property rights within them. Unless the climate change negotiations make headway on new targets, the incentives for investors to participate in the buying and selling of carbon credits falls away. Without a clear price signal for credits after Kyoto expires in 2012, buyers are much less likely to invest in CDM projects despite the benefits touted by the carbon entrepreneurs. Indeed, there are already signs of a drop in interest in carbon markets, with some firms taking staff away from carbon projects in the light of the weak outcome to the negotiations in Copenhagen in December 2009. Given that outcome, it is possible even that the CDM will no longer, in practice, be operational from 2013 onwards.

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