The Cost Structure of the Clean Development Mechanism

52 Pages Posted: 20 Apr 2016

See all articles by Shaikh M. Rahman

Shaikh M. Rahman

affiliation not provided to SSRN

Donald F. Larson

Institute for the Theory and Practice of International Relations

Ariel Dinar

World Bank - Agriculture and Rural Development Department

Date Written: November 1, 2012

Abstract

This paper examines the cost of producing emission reduction credits under the Clean Development Mechanism. Using project-specific data, cost functions are estimated using alternative functional forms. The results show that, in general, the distribution of projects in the pipeline does not correspond exclusively to the cost of generating anticipated credits. Rather, investment choices appear to be influenced by location and project type considerations in a way that is consistent with variable transaction costs and investor preferences among hosts and classes of projects. This implies that comparative advantage based on the marginal cost of abatement is only one of several factors driving Clean Development Mechanism investments. This is significant since much of the conceptual and applied numerical literature concerning greenhouse gas mitigation policies relies on presumptions about relative abatement costs. The authors also find that Clean Development Mechanism projects generally exhibit constant or increasing returns to scale. In contrast, they find variations among classes of projects concerning economies of time.

Keywords: Climate Change Economics, Climate Change Mitigation and Green House Gases, Energy Production and Transportation, Transport Economics Policy & Planning, Energy and Environment

Suggested Citation

Rahman, Shaikh M. and Larson, Donald F. and Dinar, Ariel, The Cost Structure of the Clean Development Mechanism (November 1, 2012). World Bank Policy Research Working Paper No. 6262. Available at SSRN: https://ssrn.com/abstract=2175444

Shaikh M. Rahman (Contact Author)

affiliation not provided to SSRN

No Address Available

Donald F. Larson

Institute for the Theory and Practice of International Relations ( email )

P.O. Box 8795
Williamsburg, VA 23185
United States

HOME PAGE: http://https://sites.google.com/site/decrgdonaldflarson/

Ariel Dinar

World Bank - Agriculture and Rural Development Department ( email )

1818 H Street, N.W.
Washington, DC 20433
United States
202-473-0434 (Phone)

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