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How to make the clean development mechanism sustainable — The potential of rent extraction


Muller, A (2007). How to make the clean development mechanism sustainable — The potential of rent extraction. Energy Policy, 35(6):3203-3212 .

Abstract

The clean development mechanism (CDM) should foster sustainable development and greenhouse gas emission reductions. The design of the CDM and first experience suggest that it may not achieve these goals. Developing countries hosting CDM projects may lose cheap emission 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. To account for equity and distributional issues, a deliberate decision on how to distribute these rents could be taken and the potential failure of the CDM in meeting its goals calls for some further regulation. I suggest to combine these two issues and to extract the rents by a profit tax. Ideally, 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 could offer a frame for internationally coordinated tax design. This would hedge against a potential race to the bottom.

Abstract

The clean development mechanism (CDM) should foster sustainable development and greenhouse gas emission reductions. The design of the CDM and first experience suggest that it may not achieve these goals. Developing countries hosting CDM projects may lose cheap emission 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. To account for equity and distributional issues, a deliberate decision on how to distribute these rents could be taken and the potential failure of the CDM in meeting its goals calls for some further regulation. I suggest to combine these two issues and to extract the rents by a profit tax. Ideally, 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 could offer a frame for internationally coordinated tax design. This would hedge against a potential race to the bottom.

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Additional indexing

Item Type:Journal Article, refereed, original work
Communities & Collections:03 Faculty of Economics > Department of Economics
Dewey Decimal Classification:330 Economics
Language:English
Date:June 2007
Deposited On:26 Mar 2009 11:45
Last Modified:21 Nov 2017 13:37
Publisher:Elsevier
ISSN:0301-4215
Publisher DOI:https://doi.org/10.1016/j.enpol.2006.11.016

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