The financial additionality and viability of CDM projects allowing for uncertainty

Carmichael, David G.; Lea, Kjell A.; Balatbat, Maria C. A.

doi:10.1007/s10668-015-9630-5

Cited by 13 publications

(8 citation statements)

References 35 publications

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“…More stringent baselines and performance benchmarks can help ensure net emissions reductions that could compensate for nonadditional projects that manage to slip through. Ultimately, the additionality test thus becomes a matter of finding the right balance between: "false positives and false negatives" (Carmichael, Lea, & Balatbat, 2016). Relaxing the additionality demonstration on a project basis, but at the same time strengthening additionality on a technology level is one potential option to address the additionality issue (Castro & Michaelowa, 2010;Chung, 2007).…”

Section: Additionalitymentioning

confidence: 99%

Evolution of international carbon markets: lessons for the Paris Agreement

Michaelowa

Shishlov

Brescia

2019

WIREs Climate Change

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The Paris Agreement will greatly benefit from the past experience with international market mechanisms for greenhouse gas (GHG) emissions reductions and related regulatory systems, which have gone through four periods with specific challenges. The first period 1997–2004 operationalized the mechanisms defined in the Kyoto Protocol, the Clean Development Mechanism (CDM) and Joint Implementation (JI). Pilot activities in different sectors were undertaken by the public sector, and the first baseline and monitoring methodologies officially approved. Between 2005 and 2011, the carbon markets expanded massively. The EU emission trading scheme (EU ETS) was linked to the Kyoto mechanisms, creating demand for carbon credits from the private sector. During this “gold rush” period criticism emerged with regarding the uneven geographical distribution of projects, as well as environmental integrity problems related to baselines and additionality. The next period saw a collapse in carbon prices between 2012 and 2014, limiting the development of new projects. The quantitative limits on the use of offsets in the EU ETS were reached and the failure to agree on a new international regime resulted in a drying up of demand from governments. The 2015–2018 period is characterized by a gradual stabilization of the international climate regime. The Paris Agreement adopted in 2015 increases complexity through global participation in mitigation. Future carbon markets will therefore face both old challenges—supply–demand balance, environmental integrity, transaction costs—and new ones—interactions with other policies and national targets, and sectoral/policy baselines and additionality checks preventing hot air proliferation. This article is categorized under: The Carbon Economy and Climate Mitigation > Policies, Instruments, Lifestyles, Behavior

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Section: Additionalitymentioning

confidence: 99%

Evolution of international carbon markets: lessons for the Paris Agreement

Michaelowa

Shishlov

Brescia

2019

WIREs Climate Change

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“…The justification of additionality requires a relative benefit calculation compared to a counterfactual baseline. This clearly might lead to investment errors at times, where projects might be over-or under-valued from so many diverse and difficult project variables (Arvanitis et al, 2015;Carmichael et al, 2016;Carter et al, 2018;Streck, 2017). An example of this is from the implementation of the Kyoto Protocol in 1997 by which the Clean Development Mechanism (CDM) would have required DFIs to consider the value of Certified Emissions Reductions (CERs) as part of a valuation assessment (Dutschke and Michaelowa, 2006;McFarland, 2011).…”

Section: Convergence Of Operating Modelsmentioning

confidence: 99%

Competitive Conditions in Development Finance

McHugh

2022

SSRN Journal

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“…Michaelowa (2007) and Michaelowa and Purohit (2007) find that project developers can obscure the attractiveness of their projects to increase the likelihood of the projects being admitted to the CDM program. Carmichael et al (2016) provide a technical analysis of the impact of uncertainties in the cash flows associated with determining project IRR by CDM host firms and find that using reported IRR can lead to both erroneous acceptance and rejection of projects.…”

Section: Literature Review Prior Research On Cdm Additionalitymentioning

confidence: 99%

Reporting Bias and Monitoring in Clean Development Mechanism Projects*

Chen

Letmathe

Soderstrom

2020

Contemporary Accting Res

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The Clean Development Mechanism (CDM) is a flexible carbon market mechanism managed by the United Nations. The program grants tradable carbon emissions credits (Certified Emission Reductions) for carbon‐reducing projects in developing countries. A project can only be admitted to the program if it is not financially profitable, and thus would not take place without the emission credits granted through the CDM. In this paper, we examine how monitoring reduces incentives of companies to bias the reported expected financial viability of potential CDM projects to gain admission to the program. We find that reported rates of return, which are a key factor for admission to the program, tend to be downwardly biased and are negatively associated with the expected benefits stemming from forecasted greenhouse gas reductions. However, monitoring from various sources mitigates some of the distorted incentives and related reporting bias. Furthermore, the monitoring effect becomes much stronger after 2008, when the CDM Executive Board implemented a series of measures to strengthen the additionality testing that provides guidance for program applications.

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The financial additionality and viability of CDM projects allowing for uncertainty

Cited by 13 publications

References 35 publications

Evolution of international carbon markets: lessons for the Paris Agreement

Evolution of international carbon markets: lessons for the Paris Agreement

Competitive Conditions in Development Finance

Reporting Bias and Monitoring in Clean Development Mechanism Projects*

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