Dear Readers 29. June 2012
The first Working Paper in the new UNEP Risoe Working Paper Series has just been published. The paper is written by Søren E. Lütken (
snlu@risoe.dtu.dk).
The paper is available at:
http://uneprisoe.org/URCClimateWP/Pennywise_Poundfoolish_URC_WP1.pdf Title and summary of the paper:
PENNY WISE, POUND FOOLISH?
IS THE ORIGINAL INTENTION OF COST EFFICIENT EMISSIONS REDUCTION THROUGH THE CDM BEING FULFILLED?
The CDM is promoted as a mechanism that brings into play cheaper emissions reduction options in developing countries compared to those that can be realized in developed countries. The wide array of emissions reduction options that are actually exploited simultaneously may not be compatible with this assumption, and data is now accruing that challenges the cost efficiency of emissions reduction options exploited. While CDM has indeed activated probably the most cost efficient and hence very profitable emissions reductions in industrial gasses, the most prevalent investments in CDM are very cost inefficient reductions in wind and hydro projects.
In most cases, the marginal cost of abatement is not an investment driver, and it is therefore mistaken to include such projects that emerge from other investment motives in a global reduction response model the purpose of which is cost efficiency. Developing country investors are by far the largest investor group in CDM, and while many have invested in very profitable and dedicated (one-revenue stream) emissions reduction projects, the majority has its investment capital at stake in very unprofitable projects – from a carbon revenue perspective.
It is therefore time to rethink the approach to promoting emissions reduction in developing countries with a view to bringing them in better alignment with reductions undertaken in developed countries – or to realize that while the CDM promotes emissions reduction in developing countries, it does not reduce the global cost of reduction. It only shifts the burden of investment.
Best regards
Joergen Fenhann
UNEP Risoe Centre
Risoe Campus - Technical University of Denmark
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