Industrialized economies strive to fulfil at least part of their obligation to reduce greenhouse gases by investing in projects in developing countries rather than at home. Developing countries have been rather critical of this idea. This book outlines the development of the international negotiations on the subject and analyzes different design options for the Clean Development Mechanism (CDM), taking into account the interests of various groups, especially host countries. Two case studies - one on a renewable energy project in Indonesia and another on Costa Rican climate policy - show the problems that are likely to be encountered by CDM and illustrate the importance of active host country involvement. The authors discuss the problems that will be addressed by forthcoming negotiation rounds and propose practical solutions for the CDM including baseline-setting, institutional structure and credit sharing. Moreover, a long-term view on linking climate and development policy is taken to achieve an equitable allocation of emission rights.