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Can the Risks of the Kyoto Mechanisms be Reduced Through Portfolio Diversification? Evidence from the Swedish AIJ Program

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  • Urs Springer

Abstract

Through Joint Implementationand the Clean Development Mechanism, reductionsof greenhouse gas emissions achieved abroad canbe credited to domestic firms. However, thetechnical, economic and political risksinvolved may prevent the private sector frominvesting in such projects. This paperdescribes three types of risks which emissionreduction projects are exposed to. Eleven pilotprojects carried out under the ActivitiesImplemented Jointly (AIJ) program and financedby Sweden are evaluated. Actual project costsare found to exceed projected costs in allcases. Annual emission reductions also deviatefrom their expected values and vary stronglyover time, supporting the hypothesis that suchprojects are risky business. The riskmanagement tool portfolio diversification isapplied to a sample of Swedish AIJ projects.The results indicate that diversification canreduce the risks of greenhouse gas mitigationprojects significantly. Thus, carbon funds area promising way of lowering the risks of theKyoto Mechanisms for private sector investors. Copyright Kluwer Academic Publishers 2003

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  • Urs Springer, 2003. "Can the Risks of the Kyoto Mechanisms be Reduced Through Portfolio Diversification? Evidence from the Swedish AIJ Program," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 25(4), pages 501-513, August.
    • Handle: RePEc:kap:enreec:v:25:y:2003:i:4:p:501-513
    DOI: 10.1023/A:1025094313693
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    1. Oliver Gao, H. & Stasko, Timon H., 2009. "Diversification in the driveway: mean-variance optimization for greenhouse gas emissions reduction from the next generation of vehicles," Energy Policy, Elsevier, vol. 37(12), pages 5019-5027, December.
    2. Escribano Francés, Gonzalo & Marín-Quemada, José María & San Martín González, Enrique, 2013. "RES and risk: Renewable energy's contribution to energy security. A portfolio-based approach," Renewable and Sustainable Energy Reviews, Elsevier, vol. 26(C), pages 549-559.

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