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A Proposal for the Attribution of Market Leakage to CDM Projects

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  • Kuosmanen, Timo
  • Vöhringer, Frank
  • Dellink, Rob B.

Abstract

Economic models suggest that in many cases, market leakage rates of greenhouse gas abatement reach the two-digit percentage range. Consequently, the Marrakesh Accords require Clean Development Mechanism (CDM) projects to account for leakage. Despite this, most project proponents neglect market leakage for their project, because the influence of an individual project on market prices seems to be negligible. Insufficient leakage accounting is facilitated by a lack of theories and applicable proposals regarding the quantification and attribution of leakage effects. The aim of this paper is to develop a proposal for the attribution of market leakage effects to CDM projects. To this purpose, we identify the transmission mechanisms for CDM project leakage, investigate the current practice of leakage accounting, and analyse alternative attribution methods for leakage effects that are transmitted through price changes. We find that project-specific approaches must fail to take account of such leakage effects. Consequently, we propose to estimate aggregate market leakage effects and attribute them proportionally to individual projects. Our proposal is based on commodity-specific leakage factors which can be applied by project developers to any emission reductions that are associated with a project?s leakage-relevant demand or supply changes. The proposal is conservative, equitable, incentive compatible and applicable at manageable costs. --

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Bibliographic Info

Paper provided by Hamburg Institute of International Economics (HWWA) in its series HWWA Discussion Papers with number 262.

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Date of creation: 2004
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Handle: RePEc:zbw:hwwadp:262

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Web page: http://www.econstor.eu/handle/10419/20
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Related research

Keywords: Climate policy; Clean Development Mechanism; market leakage; leakage accounting; sharing rules;

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References

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  1. Victor Ginsburgh & Michiel Keyzer, 2002. "The structure of applied general equilibrium models," ULB Institutional Repository 2013/3313, ULB -- Universite Libre de Bruxelles.
  2. Onno Kuik & Reyer Gerlagh, 2003. "Trade Liberalization and Carbon Leakage," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 97-120.
  3. Shoven,John B. & Whalley,John, 1992. "Applying General Equilibrium," Cambridge Books, Cambridge University Press, number 9780521266550, April.
  4. Alan S. Manne & Richard G. Richels, 1999. "The Kyoto Protocol: A Cost-Effective Strategy for Meeting Environmental Objectives?," The Energy Journal, International Association for Energy Economics, vol. 0(Special I), pages 1-23.
  5. Felder Stefan & Rutherford Thomas F., 1993. "Unilateral CO2 Reductions and Carbon Leakage: The Consequences of International Trade in Oil and Basic Materials," Journal of Environmental Economics and Management, Elsevier, vol. 25(2), pages 162-176, September.
  6. Babiker, Mustafa & Reilly, John M. & Jacoby, Henry D., 2000. "The Kyoto Protocol and developing countries," Energy Policy, Elsevier, vol. 28(8), pages 525-536, July.
  7. Geres, Roland & Michaelowa, Axel, 2002. "A qualitative method to consider leakage effects from CDM and JI projects," Energy Policy, Elsevier, vol. 30(6), pages 461-463, May.
  8. Espey, Molly, 1998. "Gasoline demand revisited: an international meta-analysis of elasticities," Energy Economics, Elsevier, vol. 20(3), pages 273-295, June.
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