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Establishing additionality: fraud vulnerabilities in the clean development mechanism

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  • Jacqueline M. Drew
  • Michael E. Drew

Abstract

Purpose - The purpose of this paper is to explore the clean development mechanism (CDM) which creates carbon credits from emission abatement projects in developing economies. The paper aims to examine the operation of the CDM with specific reference to fraud vulnerabilities regarding the additionality of a project. An examination of the process of establishment, certification and verification of additionality (confirmation that emissions post‐implementation of the CDM project are lower than those that would have occurred under the most plausible alternative scenario) is used to highlight the need for particular vigilance in respect to sustaining and improving the integrity of future market‐based mechanisms post‐Kyoto. Design/methodology/approach - The study takes a case study approach, examining the CDM project cycle and associated key entities. Findings - The study posits that the processes associated with establishing and verifying additionality of a project are potentially key areas of systemic weakness that must be addressed. This case study explores the design features of the CDM that may afford greater opportunities for fraudulent or deceptive practices. Originality/value - The CDM takes a project‐by‐project approach to establishment, verification and certification of additionality. Whilst conceptually this design may be appropriate from an operational perspective, it potentially provides opportunities for fraudulent outcomes. The individualised approach is, by its very nature, highly resource‐intensive and inherently difficult to verify.
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Suggested Citation

  • Jacqueline M. Drew & Michael E. Drew, 2010. "Establishing additionality: fraud vulnerabilities in the clean development mechanism," Discussion Papers in Finance finance:201006, Griffith University, Department of Accounting, Finance and Economics.
    • Handle: RePEc:gri:fpaper:finance:201006
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    File URL: https://research-repository.griffith.edu.au/bitstream/handle/10072/390458/2010-06-establishing-additionality-fraud-vulnerabilities-in-the-clean-development-mechanism.pdf
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    References listed on IDEAS

    as
    1. Aldy,Joseph E. & Stavins,Robert N. (ed.), 2007. "Architectures for Agreement," Cambridge Books, Cambridge University Press, number 9780521871631.
    2. Aldy,Joseph E. & Stavins,Robert N. (ed.), 2007. "Architectures for Agreement," Cambridge Books, Cambridge University Press, number 9780521692175.
    3. World Bank & International Finance Corporation & Multilateral Investment Guarantee Agency, 2008. "Development and Climate Change," World Bank Publications - Reports 28200, The World Bank Group.
    4. Jacqueline M. Drew & Michael E. Drew, 2010. "The Identification of Ponzi Schemes: Can a Picture Tell a Thousand Frauds?," Discussion Papers in Finance finance:201008, Griffith University, Department of Accounting, Finance and Economics.
    5. World Bank & International Finance Corporation & Multilateral Investment Guarantee Agency, 2008. "Development and Climate Change," World Bank Publications - Reports 28201, The World Bank Group.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

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    2. Meine Noordwijk & Fahmuddin Agus & Sonya Dewi & Herry Purnomo, 2014. "Reducing emissions from land use in Indonesia: motivation, policy instruments and expected funding streams," Mitigation and Adaptation Strategies for Global Change, Springer, vol. 19(6), pages 677-692, August.
    3. Karen Benson & Peter M Clarkson & Tom Smith & Irene Tutticci, 2015. "A review of accounting research in the Asia Pacific region," Australian Journal of Management, Australian School of Business, vol. 40(1), pages 36-88, February.
    4. Kai Hockerts & Lisa Hehenberger & Stefan Schaltegger & Vanina Farber, 2022. "Defining and Conceptualizing Impact Investing: Attractive Nuisance or Catalyst?," Journal of Business Ethics, Springer, vol. 179(4), pages 937-950, September.
    5. Wim Carton & Adeniyi Asiyanbi & Silke Beck & Holly J. Buck & Jens F. Lund, 2020. "Negative emissions and the long history of carbon removal," Wiley Interdisciplinary Reviews: Climate Change, John Wiley & Sons, vol. 11(6), November.
    6. Matthew A. Cole & David J. Maddison & Liyun Zhang, 2020. "Testing the emission reduction claims of CDM projects using the Benford’s Law," Climatic Change, Springer, vol. 160(3), pages 407-426, June.
    7. Hui Chen & Peter Letmathe & Naomi Soderstrom, 2021. "Reporting Bias and Monitoring in Clean Development Mechanism Projects," Contemporary Accounting Research, John Wiley & Sons, vol. 38(1), pages 7-31, March.

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    More about this item

    Keywords

    Clean Development Mechanism; Additionality; Fraud;
    All these keywords.

    JEL classification:

    • G00 - Financial Economics - - General - - - General

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