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Given that the majority of CDM projects currently under development are located in China and India, how can we ensure that these countries eventually take on the binding targets we will need to reach the scientifically determined reductions in GHGs? Doesn't the CDM simple create an incentive for these countries to avoid binding targets as long as possible?

It is clearly in the world’s interest to get as much of the global economy into a low carbon trajectory as quickly as possible. However, it is politically unrealistic to expect these countries — whose emissions per capita are between one fifth and one tenth the per capita of the United States — to make an equivalent commitment at this juncture, particularly considering that they are in the midst of an aggressive development trajectory.

The CDM provides a way for ongoing engagement with these countries, developing the basic architecture of a lower carbon economy. And there is no doubt that China's emissions in 2012, 2015 or 2020 will be measurably lower than they otherwise would have been, simply because of the current accomplishments of the CDM.

Over time, the use of project based mechanisms will contribute to accelerating the development and dissemination of low carbon technologies, which will make those negotiations for binding caps from all major economies far more tenable.

It is widely believed that to address the climate crisis on the scale necessary to avert dangerous global warming, significant infrastructural and paradigm shifts must occur at an unprecedented scale. Some people are concerned that offsets provide a disincentive for making these shifts, since companies can just offset their emissions instead of making the changes themselves. Is this something you saw under the European Union Emission Trading Scheme at all, and if so, how can it be addressed in a U.S. system?

Virtually all of the macroeconomic analysis that has been done of Phase I of the Emission Trading Scheme shows that there were real emission reductions undertaken within the system, despite the fact that many companies were also actively seeking CDM CERs.

Clearly the fact that both Kyoto and the European Union Emission Trading Scheme system place quantifiable limits on the use of CDM and Joint Implementation credits guarantees that emission reductions will also be made in-country as well, so pure "outsourcing" of emissions compliance is not possible. This also appears to be the model being pursued in most U.S. legislation.

Many have complained that the CDM system is too administratively complex and unpredictable, and that the transaction costs of the system are so significant that they could almost negate any possible benefits. What lessons can be learned about structuring an offset system in a simpler, but still environmentally rigorous way? What steps is the CDM Executive Board taking to address these issues?

The CDM treads a very fine line between ensuring environmental integrity of the offsets that it certifies and the need to have some kind of efficient process within an enormous global regulatory enterprise. To date, one has to think that they have gotten it about right, as business has complained about inefficiency and environmentalists have complained about environmental integrity.

However, it is becoming increasingly clear that the project by project approval approach is creating logistical challenges as the system graduates from managing dozens, to hundreds, to now, quite literally, thousands of projects in all corners of the world. Ironically, it is the success of the CDM in terms of its very broad uptake by carbon entrepreneurs that is causing problems for the current model.

We believe the benefits of the CDM can be maintained by moving many project types into a more standardized approach, whereby emission reduction coefficients are determined "top-down" by a regulatory body, as opposed to being undertaken individually for every project by project proponents.

For example, there are dozens of highly similar wind energy projects in China that all have microscopically different emission baselines. A conservative top down baseline set by the regulator, in this case, the CDM Executive Board, would enable projects to get qualified by the system in an efficient manner with far less bureaucratic overhang.

This is how California's Climate Action Reserve deals with project based reductions and we think that it could work well for many sectors.

Is there any difference between a renewable energy certificate, or REC, and a carbon offset? Does EcoSecurities support the concept of selling RECs to offset carbon emissions?

While renewable energy clearly helps lower the carbon intensity of the electrical grid, there are a great number of other incentives for development of renewables in the U.S., including significant Production Tax Credits, and in most states, RECs or Green Tags.

For EcoSecurities, this makes it extremely problematic to claim that these assets are additional, despite their obvious benefits to the global environment and decarbonization of the economy.

Acknowledging this, EcoSecurities, along with many other companies, has steered clear of developing REC projects for Verified Emission Reductions in the voluntary market.

There are other firms that have chosen other approaches, which again highlights the need for standardized approaches like the Voluntary Carbon Standard. That said, we are very active in helping create carbon value for renewable energy projects throughout the developing world via the CDM, where incentives such as RECs are almost universally non-existent.

There has been a lot of concern about "carbon market millionaires" profiting from selling offsets, and that the only "greening" going on is in the lining of peoples' pockets. As a carbon market millionaire yourself, what do you think about this concern?

Capital markets exist to reward innovation and punish underperformance. EcoSecurities has existed for more than 11 years and the founders, of which I am one, have devoted more than 15 years to building up various aspects of the carbon market.

For many of those years, as we watched friends and colleagues flourish in other markets like internet and biotech, our decision to stay in this seemed fairly quixotic. But we understood enough of the science of climate change to recognize that a fundamental policy response had to be forthcoming, or we would be heading to a global catastrophe.

Now those policies have come into focus and the overriding recognition is that society will need to mobilize trillions of dollars of capital to decarbonize the global economy.

As part of the proverbial "bleeding edge" for many years, we were ironically well positioned to take advantage when early movers in the capital markets recognized the capabilities and brand that we had built up over a decade.

As for whether that is the only greening, well, I can tell you that given the very conservative and difficult aspects of qualifying projects for the CDM, I am 100 percent certain that our activities contribute solidly to that decarbonization trajectory and that real emission reductions have occurred all over the world because of our efforts.

What lessons have you learned personally about the market? You must have some interesting lessons learned for the U.S. as you are probably unique among your competitors in having been based in the States for over 10 years.

Actually, I'm not that unique. I started in the market in the early 1990's when the U.S. was the epicenter of a future carbon trading regime, and Europe and Japan looked at it with suspicion and distaste.

Quite a number of us from that era did not give up, but instead spent a fair bit of time since then getting our U.S. passports stamped regularly to search the world for projects.

It's nice to see that we may finally be getting back to where we thought we would be a decade ago, with the U.S. as a driving force for innovation in decarbonizing the world's economy.

Coincidentally, in a recent report produced by the United Nations Framework Convention on Climate Change, the U.S. along with Germany, the U.K. and France provided over 70 percent of the clean technology currently being utilized in CDM projects.

The U.S. is in a perfect position to learn from the both the successes and mistakes within the first Kyoto iteration and I am looking forward to being part of that next stage as well.

What do you say to people who don't seem to believe that Kyoto works?

Honestly, you haven't seen what I have seen. I've traveled all over the world and seen the results of Kyoto, where "carbon entrepreneurs," ranging from divisions within multinationals to garage inventors on their own, are seeking ways to cost effectively reduce GHG emissions.

That simply would not have happened without the market signal that Kyoto created. The fact that the CDM has registered more than 1,000 projects and has a backlog of several times that, despite the incredible bureaucratic requirements, shows an uptake several magnitudes beyond what anybody predicted when Kyoto was negotiated.

When the managing director of a West African oil refinery is proudly detailing to you the steps he'll be ordering his engineers to take to help save some 250,000 tonnes of CO2 emissions to the atmosphere, that's when you realize that you've tapped into something significant.

And having had the same basic conversation in Mumbai, Jakarta, Sao Paulo and Beijing, you realize that people really want to do something, but that you need a little push from a market.

That said, we are still in the first tentative moments of what is probably a century long issue and there are doubtless many improvements that can and will be made. But we have undoubtedly proven that the basic premise works.

Interviewer Neal Dikeman is a founding partner at Jane Capital Partners, a boutique merchant bank advising strategic investors and startups in cleantech. He is a founding contributor of Cleantech Blog, a contributing editor to Alt Energy Stocks, chairman of Cleantech.org, and a blogger for CNET's Greentech blog. He is also the founder of Carbonflow, a provider of software solutions for the carbon markets.