Simple Model Frameworks for Explaining Inefficiency of the Clean Development Mechanism
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 pa...
| Main Authors: | , |
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| Format: | Policy Research Working Paper |
| Language: | English |
| Published: |
2012
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| Subjects: | |
| Online Access: | http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20090513161017 http://hdl.handle.net/10986/4125 |
| Summary: | 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). |
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