Take a Ride on the Green Side: How Do CDM Projects Affect Indian Manufacturing Firms’ Environmental Performance?

Abstract

This study examines the causal impacts of the Clean Development Mechanism (CDM) on the environmental performance of Indian manufacturing firms, as measured by their energy use, carbon dioxide (CO2) emissions, and respective intensities. The impacts of CDM projects are estimated by combining statistical matching with the difference-in-differences approach. We found that CDM projects significantly reduced firms' CO2 emission intensity and energy intensity, but had no effect on total CO2 emissions. These results reveal that CDM projects led to an emission-reducing technique effect (decreased CO2 intensity) and to a positive scale effect (increased sales), and that the latter effect muted the impacts of the former. One of the channels of the technique effect rests on participating firms increasingly generating their electricity on site and relying more on renewable energies. Our results suggest that CDM projects improved firms' environmental performance, even though firm-level absolute CO2 emissions did not decline.