How to Attribute Market Leakage to CDM Projects

Frank Vöhringer, Timo Kuosmanen, Rob Dellink

Research output: Contribution to journalArticle

Abstract

Economic studies suggest that market leakage rates of greenhouse gas abatement can reach the two-digit percentage
range. Although the Marrakesh Accords require Clean Development Mechanism (CDM) projects to account for
leakage, most projects neglect market leakage. Insufficient leakage accounting is facilitated by a lack of applicable
methods regarding the quantification and attribution of project-related leakage effects. This article proposes a
method for attributing CDM-related market leakage effects to individual projects. To this purpose, alternative
attribution methods are analysed. We find that project-specific approaches fail to take account of market leakage
effects. Consequently, we propose to estimate aggregate market leakage effects and attribute them proportionally
to individual projects. We suggest that predetermined commodity-specific leakage factors are applied by project
developers to any emission reductions that are associated with a project’s leakage-relevant demand or supply
changes. This approach is conservative, equitable, incentive-compatible and applicable at manageable costs.
Keywords
: Clean Development Mechanism; Leakage accounting; Sharing rules
Original languageEnglish
Pages (from-to)503-516
JournalCLIMATE POLICY
Volume5
Issue number5
DOIs
Publication statusPublished - 2006
MoE publication typeA1 Journal article-refereed

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