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

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  • Muller, Adrian

    (Department of Economics, School of Business, Economics and Law, Göteborg University)

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.

Suggested Citation

  • Muller, Adrian, 2006. "How to Make the Clean Development Mechanism Sustainable - The Potential of Rent Extraction," Working Papers in Economics 214, University of Gothenburg, Department of Economics.
    • Handle: RePEc:hhs:gunwpe:0214
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    More about this item

    Keywords

    Clean Development Mechanism; economic rent; rent extraction; profit tax; sustainable development;
    All these keywords.

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • Q01 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Sustainable Development
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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