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The impact of discounting emission credits on the competitiveness of different CDM host countries


  • Castro, Paula
  • Michaelowa, Axel


Discounting the value of emission credits has been proposed as a possible approach for addressing some of the shortcomings of the Clean Development Mechanism (CDM). It could be used to compensate for non-additional CDM projects; to increase the incentive for advanced developing countries to move from the CDM to own mitigation commitments; and to improve the competitiveness of less developed countries as hosts for CDM projects. We assess the impact of discounting on the distribution of CDM projects in host countries, with a special focus on Least Developed Countries (LDCs). CDM-specific abatement cost curves are built for 4 regions: China, India, other advanced Asian countries and LDCs. Abatement costs are estimated using the information provided in the project documentation of 108 projects from 17 subtypes in 16 host countries. Abatement potentials are derived from the current CDM pipeline for each region. For LDCs, we additionally include an optimistic potential estimation by adding to the current pipeline the potential found by a World Bank study for LDCs in Sub-Saharan Africa. We then assess the effect of two emission credit discounting schemes on these abatement cost curves. Credit discounting is differentiated by host countries, based on an index composed of per capita GDP and per capita emissions. In the first scheme, it only affects the most advanced CDM host countries; in the second one it also affects China. We find that discounting has an impact on the competitiveness of individual CDM host countries in the carbon market, as it affects their abatement cost curves. It could become an instrument for incentivising advanced developing countries to leave the CDM and engage in other farther-reaching climate-related commitments, as a result of the resulting emission credit cost increases. However, even with discounting, LDCs remain unimportant in terms of abatement potential if the financial, technical and institutional barriers to CDM development in these countries are not overcome.

Suggested Citation

  • Castro, Paula & Michaelowa, Axel, 2010. "The impact of discounting emission credits on the competitiveness of different CDM host countries," Ecological Economics, Elsevier, vol. 70(1), pages 34-42, November.
  • Handle: RePEc:eee:ecolec:v:70:y:2010:i:1:p:34-42

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    References listed on IDEAS

    1. Jane Ellis & Sami Kamel, 2007. "Overcoming Barriers to Clean Development Mechanism Projects," OECD Papers, OECD Publishing, vol. 7(1), pages 1-50.
    2. Axel Michaelowa, 2003. "CDM host country institution building," Mitigation and Adaptation Strategies for Global Change, Springer, vol. 8(3), pages 201-220, September.
    3. Silayan, Alan, 2005. "Equitable distribution of CDM projects among developing countries," HWWA Reports 255, Hamburg Institute of International Economics (HWWA).
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    Cited by:

    1. Anderson, Blake & M'Gonigle, Michael, 2012. "Does ecological economics have a future?," Ecological Economics, Elsevier, vol. 84(C), pages 37-48.
    2. Strand, Jon, 2016. "Mitigation incentives with climate finance and treaty options," Energy Economics, Elsevier, vol. 57(C), pages 166-174.
    3. Stua, Michele, 2013. "Evidence of the clean development mechanism impact on the Chinese electric power system's low-carbon transition," Energy Policy, Elsevier, vol. 62(C), pages 1309-1319.
    4. Jo Dirix & Wouter Peeters & Sigrid Sterckx, 2016. "Is the Clean Development Mechanism delivering benefits to the poorest communities in the developing world? A critical evaluation and proposals for reform," Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, Springer, vol. 18(3), pages 839-855, June.
    5. Knut Rosendahl & Jon Strand, 2015. "Emissions Trading with Offset Markets and Free Quota Allocations," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 61(2), pages 243-271, June.
    6. Strand, Jon, 2013. "Strategic climate policy with offsets and incomplete abatement: Carbon taxes versus cap-and-trade," Journal of Environmental Economics and Management, Elsevier, vol. 66(2), pages 202-218.
    7. Sabine Aresin, 2015. "Monitoring Abatement in the Presence of an Import Quota on CERs," Working Papers tax-mpg-rps-2015-11, Max Planck Institute for Tax Law and Public Finance.
    8. Kamleshan Pillay & Jorge E. Viñuales, 2016. "“Monetary” rules for a linked system of offset credits," International Environmental Agreements: Politics, Law and Economics, Springer, vol. 16(6), pages 933-951, December.
    9. Warnecke, Carsten & Wartmann, Sina & Höhne, Niklas & Blok, Kornelis, 2014. "Beyond pure offsetting: Assessing options to generate Net-Mitigation-Effects in carbon market mechanisms," Energy Policy, Elsevier, vol. 68(C), pages 413-422.


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