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Carbon Leakage from the Clean Development Mechanism

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  • Knut Einar Rosendahl
  • Jon Strand

Abstract

The Clean Development Mechanism (CDM) is an offset mechanism designed to reduce the overall cost of implementing a given target for greenhouse gas (GHG) emissions in industrialized Annex B countries of the Kyoto Protocol, by shifting some of the emission reductions to Non-Annex B countries. This paper analyzes how CDM projects may lead to leakage of emissions elsewhere in NonAnnex B countries. Leakage occurs because emissions reductions under a CDM project may affect market equilibrium in regional and/or global energy andprod-uct markets, and thereby increase emissions elsewhere. We also account for potential reverse or negative leakage effects in Non-Annex B from higher emissions cap in Annex B. Our conclusion is that net leakage typically is positive and sizeable, thus leading to an overall increase in global GHG emissions when CDM projects are undertaken. Leakage is greater when the different fossil fuel markets are more segregated. doi: 10.5547/ISSN0195-6574-EJ-Vol32-No4-2

Suggested Citation

  • Knut Einar Rosendahl & Jon Strand, 2011. "Carbon Leakage from the Clean Development Mechanism," The Energy Journal, , vol. 32(4), pages 27-50, October.
    • Handle: RePEc:sae:enejou:v:32:y:2011:i:4:p:27-50
    DOI: 10.5547/ISSN0195-6574-EJ-Vol32-No4-3
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    2. Michael Jakob & Jan Christoph Steckel & Ottmar Edenhofer, 2014. "Consumption- Versus Production-Based Emission Policies," Annual Review of Resource Economics, Annual Reviews, vol. 6(1), pages 297-318, October.
    3. Anne Berner, 2015. "Kurz zum Klima: CDM – wohin geht das Geschäft mit dem Klima?," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 68(01), pages 64-66, January.
    4. Bin Fan & Yun Zhang & Xiuzhen Li & Xiao Miao, 2019. "Trade Openness and Carbon Leakage: Empirical Evidence from China’s Industrial Sector," Energies, MDPI, vol. 12(6), pages 1-16, March.
    5. Suzi Kerr & Adam Millard-Ball, 2012. "Cooperation To Reduce Developing Country Emissions," Climate Change Economics (CCE), World Scientific Publishing Co. Pte. Ltd., vol. 3(04), pages 1-30.

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    JEL classification:

    • F18 - International Economics - - Trade - - - Trade and Environment
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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