How to make the clean development mechanism sustainable--The potential of rent extraction
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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- Yuvaraj Dinesh Babu, N. & Michaelowa, Axel, 2003. "Removing barriers for renewable energy CDM projects in India and building capacity at the state level," HWWA Reports 237, Hamburg Institute of International Economics (HWWA).
- Adam Rose & Erwin Bulte & Henk Folmer, 1999. "Long-Run Implications for Developing Countries of Joint Implementation of Greenhouse Gas Mitigation," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 14(1), pages 19-31, July.
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- Eirik S. Amundsen & Christian Andersen & Jan Gaute Sannarnes, 1992. "Rent Taxes on Norwegian Hydropower Generation," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1), pages 97-116.
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