Abstract
ABSTRACTArticle 6 of the Paris Agreement provides for the creation of a successor to the Clean Development Mechanism (CDM), the parameters of which are currently being operationalized. This paper uses the broad literature on the relationship between general foreign direct investment (FDI) and inequality in FDI host countries to develop expectations about the likely impact of past and future international mitigation investment on inequality, unemployment and poverty outcomes. Using 2000 and 2010 census data for small geographic areas in Brazil, we compare the change in those outcomes in areas that experienced CDM project activity to the same in areas that did not, using a difference-in-difference approach. We find that areas with CDM project activity experienced improvements in those outcomes, which appear to be driven by project types that are associated with ‘primary’ sector activity. Including measurement and reporting procedures for these broader sustainable development outcomes in the rulebook of a post-2020 agreement could be favourable to the interests of both developed and developing countries.Key policy insightsWe find evidence that CDM project activity drove reductions in inequality, poverty and unemployment in Brazilian regions from 2000 to 2010, relative to Brazilian regions where no CDM projects were present.This evidence fits with the idea that investment into primary and secondary sector activities (as opposed to tertiary sector ones) creates new demand for lower-skilled labour.Future supranational and national-level climate and emissions mitigation frameworks could take this into account at the design stage and specifically target inequality, unemployment, and poverty reduction through the new mechanism to be developed under Article 6 of the Paris Agreement.
Highlights
In Article 6 of the 2015 Paris Agreement, governments agreed to create a ‘mechanism to contribute to the mitigation of greenhouse gas emissions and support sustainable development’, and to adopt ‘rules, modalities and procedures’ to implement the mechanism
The predecessor mechanism under the 1997 Kyoto Protocol, the Clean Development Mechanism (CDM or ‘Mechanism’ below), it aimed to assist developing countries ‘in achieving sustainable development’, contained virtually no binding legal or economic provisions that would compel project developers and other actors to directly promote the aspects of sustainable development related to inequality, unemployment and poverty reduction in the design and operation of projects (Imran, Alam, & Beaumont, 2014)
This comparison underlines the point that the scale of CDM investment is not inconsiderable, and that the Mechanism has set a precedent for mobilising large volumes of private and mixed investment into low-cost mitigation in a way that lessens the risk and investment burden on the public sector (Zhang, 2001). Despite these considerable reported capital investment volumes, their impact on the sustainable development outcomes of interest are poorly understood. This paper addresses this gap by quantitatively testing the impact of CDM project activity on inequality, unemployment and poverty in Brazil
Summary
In Article 6 of the 2015 Paris Agreement, governments agreed to create a ‘mechanism to contribute to the mitigation of greenhouse gas emissions and support sustainable development’, and to adopt ‘rules, modalities and procedures’ to implement the mechanism. Inequality, unemployment and poverty reduction are aspects of sustainable development, in addition to environmental protection (United Nations General Assembly, 1987). Some of these studies find that certain types of CDM projects associate with poverty reduction, in certain specific institutional and country contexts (Crowe, 2013; Du & Takeuchi, 2018; Mori-Clement, 2019), but when they do, they tend to be ‘only moderately successful’ (Crowe, 2013: 58) and short-lived (Mori-Clement & Bednar-Friedl, 2019). This body of research provides little evidence that CDM projects deliver strong, consistent and measurable reductions in inequality, unemployment or poverty
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