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 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).

Bibliographic Details

Main Authors:	Rosendahl, Knut Einar, Strand, Jon
Language:	English
Published:	2009-05-01
Subjects:	AGGREGATE DEMAND, APPROACH, ASYMMETRIC INFORMATION, AVAILABILITY, BASELINE EMISSIONS, CARBON, CARBON EMISSIONS, CARBON OFFSET, CARBON TAXES, CARBON UNITS, CLEAN DEVELOPMENT MECHANISM, CLIMATE CHANGE, CLIMATE POLICY, COAL, COAL PRICE, COAL PRICES, COAL SUPPLY, COAL USE, CONSUMPTION OF COAL, CONSUMPTION OF FOSSIL, DEMAND ELASTICITIES, DEMAND ELASTICITY, ECONOMICS, ELASTICITIES, ELECTRICITY, ELECTRICITY CONSUMPTION, ELECTRICITY PRODUCTION, ELECTRICITY SECTOR, ELECTRICITY SUPPLY, EMISSION, EMISSION CHANGES, EMISSION REDUCTION, EMISSION REDUCTIONS, EMISSIONS, EMISSIONS LEVELS, EMISSIONS OF METHANE, EMISSIONS REDUCTION, EMISSIONS REDUCTIONS, EMPIRICAL STUDIES, END-USERS, ENERGY CONSUMPTION, ENERGY DEMAND, ENERGY ECONOMICS, ENERGY EFFICIENCY, ENERGY EFFICIENCY IMPROVEMENTS, ENERGY INPUT, ENERGY INTENSIVE, ENERGY MARKETS, ENERGY OUTPUT, ENERGY POLICY, ENERGY PRICE, ENERGY TECHNOLOGIES, ENERGY TECHNOLOGY, ENERGY USE, ENVIRONMENTAL, ENVIRONMENTAL POLICIES, ENVIRONMENTAL POLICY, ENVIRONMENTAL TAX, EQUILIBRIUM, EXCISE TAX, EXPLOITATION, EXTERNALITIES, FIXED COSTS, FORESTRY, FOSSIL, FOSSIL FUEL, FOSSIL FUELS, FUEL, FUEL DEMAND, FUEL MARKET, FUEL PRICE, FUEL SUPPLY, FUEL TAXES, GLOBAL EMISSIONS, GREENHOUSE, GREENHOUSE GAS, GREENHOUSE GAS EMISSIONS, GREENHOUSE GASES, HEALTH PROBLEMS, HYDRO PLANT, HYDROPOWER, HYDROPOWER PLANT, INCOME, JOINT IMPLEMENTATION, LEVEL OF EMISSIONS, MACROECONOMICS, NATURAL GAS, NEW PLANT, OIL, OPEC, PERMIT TRADING, POLICY INSTRUMENTS, POLLUTION, POWER PRODUCERS, PRICE ELASTICITIES, PRICE VARIATIONS, PRODUCTION TECHNOLOGY, QUOTAS, REDUCTION IN EMISSIONS, RENEWABLE ELECTRICITY, RENEWABLE ENERGIES, RENEWABLE POWER, TAX REVENUE, TECHNOLOGICAL CHANGE, TRANSACTION COSTS, TRANSPORT, TRANSPORT COSTS, TRUE,
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 https://hdl.handle.net/10986/4125
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