The Clean Development Mechanism (CDM) gives the industrialized countries (the Annex I countries) some flexibility in achieving their emission reduction targets under the Kyoto Protocol by allowing them to pay for projects that reduce greenhousegas emissions in the developing countries (the non-Annex I countries). This paper is devoted to evaluate the efficacy of the CDM. We show that, on one hand, the emissions in the non-Annex I country decline because of abatement undertaken by the Annex I country under the CDM; on the other hand, the total emissions may increase because (i) the Annex I country will increase emissions in its own country, and (ii) the non-Annex I country, under some conditions, could crowd out the benefits from the CDM projects by increasing its domestic emissions. In order for the CDM to be more effective, we recommend that only partial credits should be given to the Annex I country that undertakes abatement under the CDM. We also suggest that the authority overseeing the CDM should not allow the CDM projects to be hosted by the non-Annex I country that is more conscious about the environment.
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Length: Date of creation: Aug 2008 Date of revision: Handle: RePEc:san:wpecon:0808
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