The impact of private investor's transaction costs on the cost effectiveness of project-based Kyoto mechanisms

Abstract

From a private investor's point of view transaction costs of project-based Kyoto mechanisms relate mainly to project management and interaction with government representatives. However, when analysing the cost effectiveness of project-based Kyoto mechanisms these transaction costs are often underestimated or completely ignored due to limited data availability. This paper presents an analysis of transaction costs of project-based Kyoto mechanisms by applying cost estimates from comparable activities, for example, activities implemented jointly (AIJ). The findings show that transaction costs of AIJ projects range between 7% and more than 100% of production costs with 80% of projects lying between 14 and 89%. Furthermore the data clearly illustrate that “bigger” projects have lower specific project costs indicating the existence of economies of scale. Due to the fact that high transaction costs will push many promising projects out of the market, efforts should be undertaken to reduce transaction costs by improving procedures and business environments, for example, by standardisation.