Role of Flexible Mechanisms in Reducing GHGs

Although the impacts of climate variability and change, as well as the ability to adapt, vary widely across regions of the globe, the global warming impact of greenhouse gases (GHG) is the same, irrespective of where they are emitted.

This equivalence in impact is the basic principle for a global management scheme to mitigate GHG emissions. In this context, an entity seeking to reduce its GHG emissions – for compliance purposes or on a voluntary basis – may either opt for internal abatement measures or acquire credits to offset the excess emissions.

Estimates of carbon emission reduction cost suggest a significantly lower cost in developing countries than in developed countries. This suggests meaningful participation of developing countries in the global carbon market, bringing real emissions reduction in return for (mostly private) additional capital.

However, it appears that most of the Clean Development Mechanism (CDM) projects are concentrated in a handful of countries (China, India, Brazil and Mexico) and mostly focus on the reduction of industrial gases. Given the dual benefit from the CDM market – cost effective GHG emission reduction and funding of activities leading to growth in developing countries – it is a missed opportunity that the market is so concentrated rather distributed much more uniformly over the developing country continuum. 

This research is aimed at providing better assessment of the potential of the project-based mechanisms and economic assessment of their likely future direction. In particular, this proposal makes use of a combined dataset of the Kyoto-eligible project transactions along with data on previous and current pilots¹that have occurred since 1992. It also expands that dataset by adding transactions funded by other existing mechanisms.

Note

1.    The most significant of these are a multi-country pilot, Activities Implemented Jointly, operated under UN auspices prior to the Kyoto Protocol and current pilots in the United States, and Australia, countries that have not ratified the Protocol.