Simple Model Frameworks for Explaining Inefficiency of the Clean Development Mechanism

28 Pages Posted: 20 Apr 2016

See all articles by Knut Einar Rosendahl

Knut Einar Rosendahl

affiliation not provided to SSRN

Jon Strand

University of Oslo - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: May 1, 2009

Abstract

The Clean Development Mechanism (CDM) is an offset mechanism designed to reduce the overall cost of implementing a given global target for greenhouse gas (GHG) emissions in industrialized"Annex B"countries of the Kyoto Protocol. This paper discusses various ways in which CDM projects do not imply full offset of emissions, thus leading to an overall increase in global GHG emissions when considering the Annex-B emissions increase allowed by the offsets. The authors focus on two ways in which this may occur: baseline manipulation; and leakage. Baseline manipulation may result when agents that carry out CDM projects have incentives to increase their initial (or baseline) emissions in order to optimize the value of CDM credits. Leakage occurs because reductions in emissions under a CDM project may affect market equilibrium in local and/or global energy and product markets, and thereby increase emissions elsewhere. Remedies against these problems are discussed. Such remedies are more obvious for the baseline problem (where one is simply to choose an exogenous baseline independent of the project) than for the leakage problem (which is difficult to prevent, and where a prediction of the effect must rely on information about overall market equilibrium effects).

Keywords: Energy Production and Transportation, Environmental Economics & Policies, Environment and Energy Efficiency, Energy and Environment, Transport Economics Policy & Planning

Suggested Citation

Rosendahl, Knut Einar and Strand, Jon, Simple Model Frameworks for Explaining Inefficiency of the Clean Development Mechanism (May 1, 2009). World Bank Policy Research Working Paper No. 4931, Available at SSRN: https://ssrn.com/abstract=1405162

Knut Einar Rosendahl (Contact Author)

affiliation not provided to SSRN

No Address Available

Jon Strand

University of Oslo - Department of Economics ( email )

P.O. Box 1095 Blindern
N-0317 Oslo
Norway

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
109
Abstract Views
883
Rank
450,735
PlumX Metrics