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Assessing China’s price review policy on Clean Development Mechanism projects

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  • Jinshan Zhu

    (University of Potsdam)

Abstract

The Kyoto Protocol’s Clean Development Mechanism (CDM) allows developed countries to meet part of their obligational emission reductions by carrying out emission reduction projects in developing countries. China imposed a price floor to the CDM carbon credits produced in China through its price review policy. Scholars have not agreed on the purpose of China’s price review policy. With a theoretical model and a coherent empirical study, the present study shows that the price floor imposed by China’s price review is more likely to protect those domestic project owners against price discrimination, rather than to distort the CDM market. Nevertheless, China’s price review has its own flaws. Although a regression study shows month of approval, types of projects and location of project can explain 55% of price floor designation, the operation of price review remains quite random and unpredictable in individual cases. This would bring extra bureaucratically uncertainty on its way to curb market uncertainty. Its function can be fulfilled by alternative policy tools with better economic efficiency and legal legitimacy, such as mandatory price disclosure and trading forum, which doesn’t have such drawback, but still be able to alleviate possible price discrimination in individual cases.

Suggested Citation

  • Jinshan Zhu, 2017. "Assessing China’s price review policy on Clean Development Mechanism projects," European Journal of Law and Economics, Springer, vol. 43(2), pages 285-316, April.
    • Handle: RePEc:kap:ejlwec:v:43:y:2017:i:2:d:10.1007_s10657-016-9550-3
    DOI: 10.1007/s10657-016-9550-3
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    More about this item

    Keywords

    CDM; China; Price review; Price floor; Law and economics;
    All these keywords.

    JEL classification:

    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • K32 - Law and Economics - - Other Substantive Areas of Law - - - Energy, Environmental, Health, and Safety Law

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