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Why the CDM will reduce carbon leakage

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  • STEFFEN KALLBEKKEN

Abstract

Carbon leakage is an important concern because it can reduce the environmental effectiveness of the Kyoto Protocol. The Clean Development Mechanism (CDM), one of the flexibility mechanisms allowed under the protocol, has the potential to reduce carbon leakage significantly because it reduces the relative competitive disadvantage to Annex-B countries of restricting greenhouse gas emissions. The economic rationale behind this mechanism is explored in a theoretical analysis. It is then analysed numerically using a computable general equilibrium (CGE) model. The results indicate that, assuming appropriate accounting for leakage and under realistic assumptions on CDM activity, the CDM has the potential to reduce the magnitude of carbon leakage by more than one-half.

Suggested Citation

  • Steffen Kallbekken, 2007. "Why the CDM will reduce carbon leakage," Climate Policy, Taylor & Francis Journals, vol. 7(3), pages 197-211, May.
    • Handle: RePEc:taf:tcpoxx:v:7:y:2007:i:3:p:197-211
    DOI: 10.1080/14693062.2007.9685649
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    References listed on IDEAS

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    1. Di Maria, C. & van der Werf, E.H., 2005. "Carbon Leakage Revisited : Unilateral Climate Policy with Directed Technical Change," Discussion Paper 2005-68, Tilburg University, Center for Economic Research.
    2. Corrado Maria & Edwin Werf, 2008. "Carbon leakage revisited: unilateral climate policy with directed technical change," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 39(2), pages 55-74, February.
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    Cited by:

    1. Zhang, Zhong Xiang, 2012. "Competitiveness and Leakage Concerns and Border Carbon Adjustments," International Review of Environmental and Resource Economics, now publishers, vol. 6(3), pages 225-287, December.
    2. Stankeviciute, Loreta & Kitous, Alban & Criqui, Patrick, 2008. "The fundamentals of the future international emissions trading system," Energy Policy, Elsevier, vol. 36(11), pages 4272-4286, November.
    3. Karp, Larry S. & Zhao, Jinhua, 2008. "A Proposal for the Design of the Successor to the Kyoto Protocol," CUDARE Working Papers 42878, University of California, Berkeley, Department of Agricultural and Resource Economics.
    4. repec:zbw:hohpro:354 is not listed on IDEAS
    5. 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.
    6. Christoph Böhringer & Thomas Rutherford & Marco Springmann, 2015. "Clean-Development Investments: An Incentive-Compatible CGE Modelling Framework," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 60(4), pages 633-651, April.
    7. Anne Berner, 2015. "Climate Notes: CDM – What Direction is Business with the Climate Taking?," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 68(01), pages 64-66, January.
    8. D. Rajagopal, 2017. "A synthesis of unilateral approaches to mitigating emissions leakage under incomplete policies," Climate Policy, Taylor & Francis Journals, vol. 17(5), pages 573-590, July.
    9. Anger, Niels & Böhringer, Christoph & Moslener, Ulf, 2007. "Macroeconomic Impacts of the Clean Development Mechanism: The Role of Investment Barriers and Regulations," ZEW Discussion Papers 07-026, ZEW - Leibniz Centre for European Economic Research.
    10. Lim, Xin-Le & Lam, Wei-Haur, 2014. "Review on Clean Development Mechanism (CDM) implementation in Malaysia," Renewable and Sustainable Energy Reviews, Elsevier, vol. 29(C), pages 276-285.
    11. repec:old:wpaper:354 is not listed on IDEAS
    12. 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.
    13. Springmann, Marco, 2012. "Carbon tariffs for financing clean development," Conference papers 332255, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    14. Pécastaing, Nicolas & Dávalos, Jorge & Inga, Andy, 2018. "The effect of Peru's CDM investments on households’ welfare: An econometric approach," Energy Policy, Elsevier, vol. 123(C), pages 198-207.
    15. Niels ANGER & Jayant SATHAYE, 2008. "Reducing Deforestation and Trading Emissions: Carbon Market Impacts of post-Kyoto Climate Policies," EcoMod2008 23800003, EcoMod.
    16. Lazkano, Itziar & Marrouch, Walid & Nkuiya, Bruno, 2016. "Adaptation to climate change: how does heterogeneity in adaptation costs affect climate coalitions?," Environment and Development Economics, Cambridge University Press, vol. 21(6), pages 812-838, December.
    17. Huang, Yongfu & Barker, Terry, 2012. "The Clean Development Mechanism and low carbon development: A panel data analysis," Energy Economics, Elsevier, vol. 34(4), pages 1033-1040.
    18. Huiying Ye & Qi Zhang & Xunzhang Pan & Arash Farnoosh, 2020. "Market-induced carbon leakage in China’s certified emission reduction projects," Mitigation and Adaptation Strategies for Global Change, Springer, vol. 25(6), pages 987-1012, August.
    19. Bohringer, Christoph & Rutherford, Thomas F. & Springmannc, Marco, 2013. "Clean-development investments : an incentive-compatible CGE modeling framework," Policy Research Working Paper Series 6720, The World Bank.

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