The impact of the Clean Development Mechanism on developing countries’ commitment to mitigate climate change and its implications for the future

Abstract

The objective of this paper is to examine the mitigation of climate change using the Clean Development Mechanism (CDM) from the perspective of developing countries. The effects of the CDM on developing countries’ efforts to reduce greenhouse gases (GHGs) pledged under the Paris Agreement (United Nations Framework Convention on Climate Change [UNFCCC], 21st Conference of the Parties, Paris, France) are investigated. Data analysis reveals that the intensive hosting of CDM projects and the resultant higher marginal abatement costs led to fewer efforts by developing countries to mitigate climate change. A theoretical model from the literature of “low-hanging fruits” is applied to determine if rising prices of the CDM can be expected in the future. The results indicate that the benefits for developing countries must increase so as to keep the CDM attractive for them in an environment where they also have reduction commitments. To further ensure the effectiveness of the CDM under the Paris Agreement, policy should ensure that developing countries actually charge higher prices and, at the same time, contribute adequately to the global goal of GHG reductions. To this end, developing countries should be permitted to demand benefits that lie outside the current scope of the CDM, and non-compliance with their climate targets should also be sanctioned. In addition, fostering sustainable development should become more attractive for developed countries without the CDM, e.g., through sustainability labels, so as to reduce the trade-off for developing countries between the benefits of the CDM and compliance with their commitments to mitigate climate change.