Climate Change Mitigation in Advanced Developing Countries: Empirical Analysis of the Low-Hanging Fruit Issue in the Current CDM

Abstract

Under the Kyoto Protocol, developing countries can voluntarily participate in climate change mitigation through the Clean Development Mechanism (CDM), where emission reduction credits from projects in developing countries are bought by industrialized countries to meet their own commitments. Before its implementation, developing-country experts opposed the CDM, arguing that it would sell off their countries’ cheapest emission reduction options and force them to invest in more expensive measures to meet their future reduction targets. This paper analyzes this “low-hanging fruit” argument empirically. CDM projects’ emissions abatement costs and potentials are estimated for different technologies in eight countries, using capital budgeting tools and the information from the projects’ documentation. Through a comparison with theoretical marginal abatement cost curves, we discuss whether the low-hanging fruit argument holds. We find that the CDM is not yet capturing a large portion of the identified abatement potential in most countries. While the costs of most emissions reduction opportunities grasped lie below the average credit price, there is still plenty of low-cost opportunities available. Mexico and Argentina appear to use the CDM exclusively for harvesting the low-hanging fruit, whereas in the other countries analyzed more expensive projects are also accessing the CDM. This evidence challenges the low-hanging fruit claim.