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Clean development mechanism (CDM) vs. international permit trading – the impact on technological change


  • Hagem, Cathrine

    () (Dept. of Economics, University of Oslo)


The clean development mechanism (CDM) under the Kyoto Protocol may induce a technological change in developing countries. As an alternative to the CDM-regime, developing countries may accept a (generous) cap on their own emissions, let domestic producers invest in new efficient technologies, and sell the excess emission permits on the international permit market (cap&trade-regime). The purpose of this paper is to show how the gains from investment, and hence the incentive for investment in new technology may deviate between the two alternative regimes. We show that the difference in gains from investment depends on whether the producers face competitive or non-competitive output markets, whether the investment affects fixed or variable production costs and whether the producers can reduce emissions through other means than investment in new technology

Suggested Citation

  • Hagem, Cathrine, 2006. "Clean development mechanism (CDM) vs. international permit trading – the impact on technological change," Memorandum 19/2006, Oslo University, Department of Economics.
  • Handle: RePEc:hhs:osloec:2006_019

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    References listed on IDEAS

    1. Steffen Kallbekken & Hege Westskog, 2005. "Should Developing Countries Take on Binding Commitments in a Climate Agreement? An Assessment of Gains and Uncertainty," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 41-60.
    2. Requate, Till, 1998. "Incentives to innovate under emission taxes and tradeable permits," European Journal of Political Economy, Elsevier, vol. 14(1), pages 139-165, February.
    3. Adam Jaffe & Richard Newell & Robert Stavins, 2002. "Environmental Policy and Technological Change," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 22(1), pages 41-70, June.
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    More about this item


    Climate Policy; Technology Adoption; Emission Trading; Clean Development Mechanism; Technological Change;

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy

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