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Carbon market risks and rewards: Firm perceptions of CDM investment decisions in Brazil and India


  • Hultman, Nathan E.
  • Pulver, Simone
  • Guimarães, Leticia
  • Deshmukh, Ranjit
  • Kane, Jennifer


The carbon market experiences of Brazil and India represent policy success stories under several criteria. A careful evaluation, however, reveals challenges to market development that should be addressed in order to make the rollout of a post-2012 CDM more effective. We conducted firm-level interviews covering 82 CDM plants in the sugar and cement sectors in Brazil and India, focusing on how individual managers understood the potential benefits and risks of undertaking clean development mechanism (CDM) investments. Our results indicate that the CDM operates in a far more complex way in practice than that of simply adding a marginal increment to a project's internal rate of return. Our results indicate the following: first, although anticipated revenue played a central role in most managers' decisions to pursue CDM investments, there was no standard practice to account for financial benefits of CDM investments; second, some managers identified non-financial reputational factors as their primary motivation for pursuing CDM projects; and third, under fluctuating regulatory regimes with real immediate costs and uncertain CDM revenue, managers favored projects that often did not require carbon revenue to be viable. The post-2012 CDM architecture can benefit from incorporating these insights, and in particular reassess goals for strict additionality and mechanisms for achieving it.

Suggested Citation

  • Hultman, Nathan E. & Pulver, Simone & Guimarães, Leticia & Deshmukh, Ranjit & Kane, Jennifer, 2012. "Carbon market risks and rewards: Firm perceptions of CDM investment decisions in Brazil and India," Energy Policy, Elsevier, vol. 40(C), pages 90-102.
  • Handle: RePEc:eee:enepol:v:40:y:2012:i:c:p:90-102
    DOI: 10.1016/j.enpol.2010.06.063

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    Cited by:

    1. Phillips, Jon & Newell, Peter, 2013. "The governance of clean energy in India: The clean development mechanism (CDM) and domestic energy politics," Energy Policy, Elsevier, vol. 59(C), pages 654-662.
    2. Trotter, Ian Michael & da Cunha, Dênis Antônio & Féres, José Gustavo, 2015. "The relationships between CDM project characteristics and CER market prices," Ecological Economics, Elsevier, vol. 119(C), pages 158-167.
    3. Kang, Moon Jung & Park, Jihyoun, 2013. "Analysis of the partnership network in the clean development mechanism," Energy Policy, Elsevier, vol. 52(C), pages 543-553.
    4. Uddin, Noim & Blommerde, Mascha & Taplin, Ros & Laurence, David, 2015. "Sustainable development outcomes of coal mine methane clean development mechanism Projects in China," Renewable and Sustainable Energy Reviews, Elsevier, vol. 45(C), pages 1-9.
    5. Purdon, Mark, 2015. "Opening the Black Box of Carbon Finance “Additionality”: The Political Economy of Carbon Finance Effectiveness across Tanzania, Uganda, and Moldova," World Development, Elsevier, vol. 74(C), pages 462-478.
    6. Zhang, Zhaoguo & Jin, Xiaocui & Yang, Qingxiang & Zhang, Yi, 2013. "An empirical study on the institutional factors of energy conservation and emissions reduction: Evidence from listed companies in China," Energy Policy, Elsevier, vol. 57(C), pages 36-42.
    7. Gosens, Jorrit & Lu, Yonglong, 2013. "From lagging to leading? Technological innovation systems in emerging economies and the case of Chinese wind power," Energy Policy, Elsevier, vol. 60(C), pages 234-250.
    8. repec:kap:enreec:v:68:y:2017:i:2:d:10.1007_s10640-016-0025-3 is not listed on IDEAS
    9. repec:eee:wdevel:v:113:y:2019:i:c:p:222-236 is not listed on IDEAS


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