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Estimating the CDM market under the Marrakech Accords

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  • Frank Jotzo
  • Axel Michaelowa

Abstract

The agreement on implementation of the Kyoto Protocol achieved at COP7 in Marrakech has important implications for investment in greenhouse gas emission reduction projects in developing countries through the Clean Development Mechanism (CDM). The required actual emission reductions for participating Annex B countries overall will be relatively small, as the United States do not intend to ratify the protocol and significant amounts of carbon sequestered in domestic sinks can be credited. In addition, the potential supply of surplus emission permits (hot air) from Russia and other economies in transition may be as high as total demand in the first commitment period. Thus, even under restraint of hot air sellers, CDM demand will be limited, and a low demand, low price carbon market scenario appears likely. The magnitude of the CDM will be influenced by a host of factors both on the demand and the supply-side. We analyse these using a quantitative model of the global carbon market, based on marginal abatement cost curves. Implementation and transaction costs, as well as baseline and additionality rules affect the CDM's share in the carbon market. Demand for the CDM is sensitive to changes in business-as-usual emissions growth in participating Annex B countries, and also to crediting for additional sinks. Permit supply from Russia and other economies in transition is possibly the most crucial factor in the carbon market.

Suggested Citation

  • Frank Jotzo & Axel Michaelowa, 2002. "Estimating the CDM market under the Marrakech Accords," Climate Policy, Taylor & Francis Journals, vol. 2(2-3), pages 179-196, September.
    • Handle: RePEc:taf:tcpoxx:v:2:y:2002:i:2-3:p:179-196
    DOI: 10.3763/cpol.2002.0219
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    References listed on IDEAS

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    1. ZhongXiang Zhang, 2000. "Estimating the size of the potential market for the Kyoto flexibility mechanisms," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 136(3), pages 491-521, September.
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    3. repec:dgr:rugccs:199920 is not listed on IDEAS
    4. Michaelowa, Axel & Stronzik, Marcus, 2002. "Transaction costs of the Kyoto mechanisms," HWWA Discussion Papers 175, Hamburg Institute of International Economics (HWWA).
    5. Michaelowa, Axel & Stronzik, Marcus, 2002. "Transaction Costs of the Kyoto Mechanisms," Discussion Paper Series 26284, Hamburg Institute of International Economics.
    6. Zhang, ZhongXiang, 1999. "Estimating the size of the potential market for all three flexibility mechanisms under the Kyoto Protocol," MPRA Paper 13088, University Library of Munich, Germany.
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