Do Clean Development Mechanism Projects Generate Local Employment? Testing for Sectoral Effects across Brazilian Municipalities

Yadira Mori-Clement,Birgit Bednar-Friedl

doi:10.1016/j.ecolecon.2018.10.011

Yadira Mori-Clement, Birgit Bednar-Friedl

Open Access

https://doi.org/10.1016/j.ecolecon.2018.10.011

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Journal: Ecological Economics	Publication Date: Nov 17, 2018
Citations: 20	License type: cc-by

Affiliation: University of Graz

Abstract

Clean Development Mechanism (CDM) projects have a two-fold objective: reducing greenhouse gas emissions and contributing to sustainable development. But while the contribution to mitigation has been analyzed extensively in the literature, the impact on development has seldomly been quantified empirically. This paper addresses this gap by investigating the impacts of CDM projects on local employment. We use a dynamic panel regression model across Brazilian municipalities for the period 2004–2014 to estimate cross-sectoral employment effects of two project types: hydro projects and methane avoidance projects. We find that CDM projects have mixed effects on sectoral employment. Municipalities with hydro projects show a positive impact on commerce and a negative on agricultural employment. In a similar way, these effects have also been identified in municipalities with methane avoidance projects, as well as positive effects in the service and the construction sector. Regardless of project type, the sectoral employment effects are found to be small and transitory, i.e. these took place immediately or within the first, second or third year after the registration of the project, corresponding to the construction phase and early years of operation. Revenues from Certified Emission Reductions (CER) seem to have no or a very small positive impact on sectoral employment, and no significant impact is found for the CER price fall in 2012.

Highlights

In order to ensure that global climate average does not exceed the 2 °C target, mitigation measures must be taken to achieve the necessary reduction in emissions to cope with climate change by both industrialized and developing countries
In order to assess the impacts of Clean Development Mechanism (CDM) projects on employment, we investigate effects on total and cross-sectoral employment at the municipality level using a dynamic panel regression model for period 2004–2014
Once we have identified those municipalities with CDM projects by year, this database was merged with other datasets in order to build the panel

Summary

Introduction

In order to ensure that global climate average does not exceed the 2 °C target, mitigation measures must be taken to achieve the necessary reduction in emissions to cope with climate change by both industrialized and developing countries. With the Paris Agreement (2015), mitigation efforts are required from both industrialized and developing countries, and industrialized countries are to assist developing countries in their efforts via international climate finance and technology exchange. To understand the impacts of projects funded by such climate finance, this paper draws on experience from the Clean Development Mechanism (CDM), which is the primary instrument to support mitigation efforts in developing countries within the Kyoto Protocol. Job creation is one of the benefits most commonly claimed by different types of CDM projects (United Nations Framework Convention on Climate Change, 2012; Spalding-Fecher et al, 2012) since these investments are expected to bring a significant stimulus to the local economy along project's life (Olhoff et al, 2004).

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