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How to make the clean development mechanism sustainable--The potential of rent extraction

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  • Muller, Adrian

Abstract

The Clean Development Mechanism (CDM) should foster sustainable development and greenhouse gas emissions reductions. The design of the CDM and first experience suggest that it may not achieve these goals. Developing countries hosting CDM projects may loose cheap emissions reduction possibilities for their own future use, and sustainable development and technology transfer may not take place. On the other hand, the CDM has the potential to generate considerable rents if permit prices are high or costs low. A deliberate decision on how to distribute these rents should be taken and the potential failure of the CDM in meeting its goals calls for further regulation. I suggest to combine these two issues and to extract the rents by a profit tax. The tax revenues could contribute to national sustainable development strategies, to offset external costs imposed by CDM projects and to extract part of the resource rent they may generate. The international character of the CDM offers a frame for internationally coordinated tax design. This would hedge against a potential race to the bottom.
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  • Muller, Adrian, 2007. "How to make the clean development mechanism sustainable--The potential of rent extraction," Energy Policy, Elsevier, vol. 35(6), pages 3203-3212, June.
  • Handle: RePEc:eee:enepol:v:35:y:2007:i:6:p:3203-3212
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    Cited by:

    1. Yang, Ming & Nguyen, François & De T'Serclaes, Philippine & Buchner, Barbara, 2010. "Wind farm investment risks under uncertain CDM benefit in China," Energy Policy, Elsevier, vol. 38(3), pages 1436-1447, March.
    2. Nussbaumer, Patrick, 2009. "On the contribution of labelled Certified Emission Reductions to sustainable development: A multi-criteria evaluation of CDM projects," Energy Policy, Elsevier, vol. 37(1), pages 91-101, January.
    3. Anna Davies & Niamh Kirwan, 2010. "Rescaling climate justice: sub-national issues and innovations for low carbon futures," The Institute for International Integration Studies Discussion Paper Series iiisdp340, IIIS.
    4. Drupp, Moritz A., 2011. "Does the Gold Standard label hold its promise in delivering higher Sustainable Development benefits? A multi-criteria comparison of CDM projects," Energy Policy, Elsevier, vol. 39(3), pages 1213-1227, March.
    5. Kasai, Katsuya, 2012. "How can LDCs benefit from the CDM?: A panel data analysis of determinants of CDM project hosting," MPRA Paper 52137, University Library of Munich, Germany, revised Dec 2012.
    6. Liu, Xuemei, 2008. "The monetary compensation mechanism: An alternative to the clean development mechanism," Ecological Economics, Elsevier, vol. 66(2-3), pages 289-297, June.
    7. Kasai, Katsuya, 2012. "Factors Affecting the Distribution of CERs: A Cross-Sectional Empirical Analysis," MPRA Paper 52163, University Library of Munich, Germany, revised Jan 2013.
    8. Liu, Xuemei, 2008. "Rent extraction with a type-by-type scheme: An instrument to incorporate sustainable development into the CDM," Energy Policy, Elsevier, vol. 36(6), pages 1873-1878, June.
    9. Purohit, Pallav, 2008. "Small hydro power projects under clean development mechanism in India: A preliminary assessment," Energy Policy, Elsevier, vol. 36(6), pages 2000-2015, June.
    10. 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.
    11. Koo, Bonsang, 2017. "Preparing hydropower projects for the post-Paris regime: An econometric analysis of the main drivers for registration in the Clean Development Mechanism," Renewable and Sustainable Energy Reviews, Elsevier, vol. 73(C), pages 868-877.
    12. Kasai, Katsuya, 2011. "A Cross-Country Empirical Analysis of Determinants of Clean Development Mechanism (CDM) Projects," MPRA Paper 52160, University Library of Munich, Germany, revised Jan 2012.
    13. Sahu, Santosh Kumar & Narayanan, K., 2013. "Exports and Participation in Clean Development Mechanism [CDM] in Technology Intensive Industries in India," MPRA Paper 50745, University Library of Munich, Germany.
    14. Johannes Alexeew & Linda Bergset & Kristin Meyer & Juliane Petersen & Lambert Schneider & Charlotte Unger, 2010. "An analysis of the relationship between the additionality of CDM projects and their contribution to sustainable development," International Environmental Agreements: Politics, Law and Economics, Springer, vol. 10(3), pages 233-248, September.
    15. Emma Paulsson, 2009. "A review of the CDM literature: from fine-tuning to critical scrutiny?," International Environmental Agreements: Politics, Law and Economics, Springer, vol. 9(1), pages 63-80, February.
    16. Liu, Xuemei, 2010. "Extracting the resource rent from the CDM projects: Can the Chinese Government do better?," Energy Policy, Elsevier, vol. 38(2), pages 1004-1009, February.
    17. Raul Gouvea & Jonathan Linton & Manuel Montoya & Steven Walsh, 2012. "Emerging Technologies and Ethics: A Race-to-the-Bottom or the Top?," Journal of Business Ethics, Springer, vol. 109(4), pages 553-567, September.
    18. Suzi Kerr & Adam Millard-Ball, 2012. "Cooperation to Reduce Developing Country Emissions," Working Papers 12_03, Motu Economic and Public Policy Research.
    19. Lee, Hyounkyu & Park, Taeil & Kim, Byungil & Kim, Kyeongseok & Kim, Hyoungkwan, 2013. "A real option-based model for promoting sustainable energy projects under the clean development mechanism," Energy Policy, Elsevier, vol. 54(C), pages 360-368.
    20. Yadira Mori Clement & Birgit Bednar-Friedl, 2017. "Do Clean Development Mechanism projects generate local employment? Testing for sectoral effects across Brazilian municipalities," Graz Economics Papers 2017-05, University of Graz, Department of Economics.

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    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • Q01 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Sustainable Development
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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