International environmental policy and poverty alleviation

Abstract

We investigate how alternative national and international policies and circumstances impact the Clean Development Mechanism’s (CDM) contribution to sustainable development and the pursuit of poverty eradication goals in developing countries. In particular, we focus on the importance of technology-specific versus technology-neutral environmental regulations in the project host regions. We also consider alternative CDM benefit-sharing arrangements between the host and client regions. An analytical impure-public-good model is developed which considers CDM projects as a conditional transfer exerting price and income effects. These, in turn, induce changes in the use of environmental technologies, and with it global and local environmental protection levels. Aided by model simulations using empirical data for China and the European Union, we seek to assess conditions in which CDM transfers are more favourable towards improved environmental protection and welfare in developing regions.