Do bilateral trade relationships influence the distribution of CDM projects?

Valeria Costantini and Giorgia Sforna

Climate Policy, 2014, vol. 14, issue 5, 559-580

Abstract: The use of the Clean Development Mechanism (CDM) is increasingly widespread in developing countries. However, CDM projects are still far from being an effective development activity due to the uneven distribution of these projects in a few relatively well-off economies. One potential cause of this imbalance is analysed in terms of the trade relationships between developed and developing countries. By applying a gravity model to a panel dataset, well-established export flows from developed economies towards developing countries are shown to explain why a large proportion of CDM projects are unevenly geographically distributed. This kind of lock-in effect regarding the CDM between developed and developing countries could be avoided by both enhancing the institutional framework in developing countries that host CDM projects and reinforcing compulsory rules for CDM destinations in the least-developed economies. Policy relevance The results presented in this article are relevant in two ways to the ongoing climate change negotiations regarding the future of the Kyoto Protocol and its various mechanisms, and more generally to the fight against climate change and its impacts on developing countries. First, in order to overcome the lock-in effect created by export flows from developed to developing countries, there should be an ad hoc policy action to redistribute CDM investments to developing countries. Second, there is also a need for the institutional framework in developing countries that host CDMs to be enhanced because it is a major factor in reducing transaction costs and the risk of uncertainty. This framework could therefore provide a stable environment for investment decisions.

Date: 2014
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DOI: 10.1080/14693062.2014.871467

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