Inequality, unemployment, and poverty impacts of mitigation investment: evidence from the CDM in Brazil and implications for a post-2020 mechanism

David Grover and Swaroop Rao

Climate Policy, 2020, vol. 20, issue 5, 609-625

Abstract: Article 6 of the Paris Agreement provides for the creation of a successor to the Clean Development Mechanism (CDM), the parameters of which are currently being operationalized. This paper uses the broad literature on the relationship between general foreign direct investment (FDI) and inequality in FDI host countries to develop expectations about the likely impact of past and future international mitigation investment on inequality, unemployment and poverty outcomes. Using 2000 and 2010 census data for small geographic areas in Brazil, we compare the change in those outcomes in areas that experienced CDM project activity to the same in areas that did not, using a difference-in-difference approach. We find that areas with CDM project activity experienced improvements in those outcomes, which appear to be driven by project types that are associated with ‘primary’ sector activity. Including measurement and reporting procedures for these broader sustainable development outcomes in the rulebook of a post-2020 agreement could be favourable to the interests of both developed and developing countries.Key policy insights We find evidence that CDM project activity drove reductions in inequality, poverty and unemployment in Brazilian regions from 2000 to 2010, relative to Brazilian regions where no CDM projects were present.This evidence fits with the idea that investment into primary and secondary sector activities (as opposed to tertiary sector ones) creates new demand for lower-skilled labour.Future supranational and national-level climate and emissions mitigation frameworks could take this into account at the design stage and specifically target inequality, unemployment, and poverty reduction through the new mechanism to be developed under Article 6 of the Paris Agreement.

Date: 2020
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Working Paper: Inequality, unemployment, and poverty impacts of mitigation investment: evidence from the CDM in Brazil and implications for a post-2020 mechanism (2020)
Working Paper: Inequality, unemployment, and poverty impacts of mitigation investment: evidence from the CDM in Brazil and implications for a post-2020 mechanism (2020)
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DOI: 10.1080/14693062.2020.1760773

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