Effect of the Clean Development Mechanism on the deployment of renewable energy: Less developed vs. well-developed financial markets

Abstract

Using a panel dataset of 64 Clean Development Mechanism (CDM) host countries for the 2001–2014 period, we examine the effect of the CDM on deploying renewable energy at varying levels of domestic financial development. We find that the positive effect of the CDM on the deployment of renewable energy is pronounced in countries with less developed domestic financial markets. Given that renewable sectors in less developed financial markets experience shortages of debt and equity financing, the CDM plays an active role in improving access to financing for these sectors. Our results suggest that investing in CDM projects to deploy renewable energy is particularly valuable for developing countries with less developed financial markets.