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Carbon Leakage from the Clean Development Mechanism

Knut Einar Rosendahl () and Jon Strand

The Energy Journal, 2011, vol. Volume 32, issue Number 4, 27-50

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 Non-Annex B countries. Leakage occurs because emissions reductions under a CDM project may affect market equilibrium in regional and/or global energy and product 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.

JEL-codes: F0 (search for similar items in EconPapers)
Date: 2011
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Working Paper: Carbon leakage from the clean development mechanism (2009) Downloads
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