How to Make the Clean Development Mechanism Sustainable - The Potential of Rent Extraction

Adrian Muller ()

No 214, Working Papers in Economics from University of Gothenburg, Department of Economics

Abstract: The Clean Development Mechanism (CDM) should foster sustainable development and greenhouse gas emissions reductions. The design of the CDM and first experience suggest that it may not achieve these goals. Developing countries hosting CDM projects may loose cheap emissions reduction possibilities for their own future use, and sustainable development and technology transfer may not take place. On the other hand, the CDM has the potential to generate considerable rents if permit prices are high or costs low. A deliberate decision on how to distribute these rents should be taken and the potential failure of the CDM in meeting its goals calls for further regulation. I suggest to combine these two issues and to extract the rents by a profit tax. The tax revenues could contribute to national sustainable development strategies, to offset external costs imposed by CDM projects and to extract part of the resource rent they may generate. The international character of the CDM offers a frame for internationally coordinated tax design. This would hedge against a potential race to the bottom.

Keywords: Clean Development Mechanism; economic rent; rent extraction; profit tax; sustainable development (search for similar items in EconPapers)
JEL-codes: H23 Q01 Q54 (search for similar items in EconPapers)
Pages: 19 pages
Date: 2006-08-31
New Economics Papers: this item is included in nep-ene and nep-env
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Published in Energy Policy, 2007, pages 3203-3212.

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Journal Article: How to make the clean development mechanism sustainable--The potential of rent extraction (2007)
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