Renewable Energy Investment and the Clean Development Mechanism
31 Pages Posted: 1 Apr 2010
Date Written: March 1, 2010
Abstract
This paper uses transaction and index data to empirically examine price formation in, and equilibrium characteristics of, the primary CDM market. Results point to the preemptive behaviour among intermediaries (carbon firms), and inefficiencies in information transmission between secondary and primary markets (potentially due to the limits of arbitrage). Since the primary carbon market is unstable and is prone to rational and irrational oscillations, the CDM, in its current form, is not a reliable policy tool for long-term renewable energy sector development plans, whenever fiscal regulatory instruments are available.
Keywords: Clean Development Mechanism, real options, renewable energy investment
JEL Classification: G31, Q42, Q54
Suggested Citation: Suggested Citation
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