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Carbon Leakage from the Clean Development Mechanism

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  • Knut Einar Rosendahl
  • Jon Strand

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 NonAnnex B countries. Leakage occurs because emissions reductions under a CDM project may affect market equilibrium in regional and/or global energy andprod-uct 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. doi: 10.5547/ISSN0195-6574-EJ-Vol32-No4-2

Suggested Citation

  • Knut Einar Rosendahl & Jon Strand, 2011. "Carbon Leakage from the Clean Development Mechanism," The Energy Journal, , vol. 32(4), pages 27-50, October.
    • Handle: RePEc:sae:enejou:v:32:y:2011:i:4:p:27-50
    DOI: 10.5547/ISSN0195-6574-EJ-Vol32-No4-3
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    1. Searchinger, Timothy & Heimlich, Ralph & Houghton, R. A. & Dong, Fengxia & Elobeid, Amani & Fabiosa, Jacinto F. & Tokgoz, Simla & Hayes, Dermot J. & Yu, Hun-Hsiang, 2008. "Use of U.S. Croplands for Biofuels Increases Greenhouse Gases Through Emissions from Land-Use Change," Staff General Research Papers Archive 12881, Iowa State University, Department of Economics.
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    Cited by:

    1. Nicholas Z. Muller, 2014. "Air Pollution Damages from Offshore Energy Production," The Energy Journal, , vol. 35(4), pages 39-60, October.
    2. Yu, Pei & Cai, Zhengfang & Sun, Yongping, 2021. "Does the emissions trading system in developing countries accelerate carbon leakage through OFDI? Evidence from China," Energy Economics, Elsevier, vol. 101(C).
    3. Trotter, Ian Michael & da Cunha, Dênis Antônio & Féres, José Gustavo, 2015. "The relationships between CDM project characteristics and CER market prices," Ecological Economics, Elsevier, vol. 119(C), pages 158-167.
    4. Michael Jakob & Jan Christoph Steckel & Ottmar Edenhofer, 2014. "Consumption- Versus Production-Based Emission Policies," Annual Review of Resource Economics, Annual Reviews, vol. 6(1), pages 297-318, October.
    5. Strand, Jon, 2013. "Strategic climate policy with offsets and incomplete abatement: Carbon taxes versus cap-and-trade," Journal of Environmental Economics and Management, Elsevier, vol. 66(2), pages 202-218.
    6. Benjamin Jones & Michael Keen & Jon Strand, 2013. "Fiscal implications of climate change," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 20(1), pages 29-70, February.
    7. Anne Berner, 2015. "Kurz zum Klima: CDM – wohin geht das Geschäft mit dem Klima?," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 68(01), pages 64-66, January.
    8. Delacote, Philippe & Robinson, Elizabeth J.Z. & Roussel, Sébastien, 2016. "Deforestation, leakage and avoided deforestation policies: A spatial analysis," Resource and Energy Economics, Elsevier, vol. 45(C), pages 192-210.
    9. Knut Rosendahl & Jon Strand, 2015. "Emissions Trading with Offset Markets and Free Quota Allocations," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 61(2), pages 243-271, June.
    10. Bin Fan & Yun Zhang & Xiuzhen Li & Xiao Miao, 2019. "Trade Openness and Carbon Leakage: Empirical Evidence from China’s Industrial Sector," Energies, MDPI, vol. 12(6), pages 1-16, March.
    11. Suzi Kerr & Adam Millard-Ball, 2012. "Cooperation To Reduce Developing Country Emissions," Climate Change Economics (CCE), World Scientific Publishing Co. Pte. Ltd., vol. 3(04), pages 1-30.
    12. Greaker, Mads & Stoknes, Per Espen & Alfsen, Knut H. & Ericson, Torgeir, 2013. "A Kantian approach to sustainable development indicators for climate change," Ecological Economics, Elsevier, vol. 91(C), pages 10-18.
    13. Bofinger, Heinrich & Strand, Jon, 2013. "Calculating the carbon footprint from different classes of air travel," Policy Research Working Paper Series 6471, The World Bank.
    14. Snorre Kverndokk, 2013. "Moral positions on tradable permit markets," Chapters, in: Roger Fouquet (ed.), Handbook on Energy and Climate Change, chapter 22, pages 490-499, Edward Elgar Publishing.
    15. Strand, Jon, 2016. "Mitigation incentives with climate finance and treaty options," Energy Economics, Elsevier, vol. 57(C), pages 166-174.
    16. Kaushal , Kevin R. & Rosendahl, Knut Einar, 2019. "Optimal REDD+ in the carbon market," Working Paper Series 3-2019, Norwegian University of Life Sciences, School of Economics and Business.
    17. Strand, Jon & Rosendahl, Knut Einar, 2012. "Global emissions effects of CDM projects with relative baselines," Resource and Energy Economics, Elsevier, vol. 34(4), pages 533-548.

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    More about this item

    Keywords

    carbon tax; liquid fuels; emissions regulation;
    All these keywords.

    JEL classification:

    • F0 - International Economics - - General

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