More specifically, firms from developed countries can comply with part of their emission reduction targets by engaging in emission reduction projects that assist developing countries in achieving sustainable development.

Such projects cover a wide range of industries that produce greenhouse gases, and the first projects have come on stream. (For details, see the article by Anne Arquit Niederberger and Raymond Saner in the April issue of Transnational Corporations at www.unctad.org/TNC.)

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The potential for the use of the CDM – and hence to attract additional foreign direct investment – is considerable: under the EU Emission Trading Scheme launched at the beginning of 2005, for example, over 12,000 industrial installations in the EU’s 25 countries must limit their greenhouse gas emissions. Failure to comply will result in a fine of €100 per tonne of carbon dioxide, beginning in 2008.

Thus, this scheme provides an economic incentive for firms to consider lower-cost CDM production opportunities in developing countries.

Firms will certainly do that. The challenge for investment promotion agencies is to attract these firms through careful targeting – and, in this manner, tap into an entirely new reservoir of FDI opportunities as well as opportunities to obtain clean technologies. What is more, since these project need to be environmentally sound, they should contribute directly to host countries’ sustainable development.

Karl P. Sauvant, Director, Division on Investment, Technology and Enterprise Development, Unctad