UNEP Risoe Assesses CDM’s Cost Efficiency

UNEP Risoe1 July 2012: The UN Environment Programme (UNEP) Risoe Centre on Energy, Climate and Sustainable Development has released the first Working Paper of a new series titled “Penny Wise, Pound Foolish?” The paper, by Søren Lütken, questions if the original intention of cost efficient emissions reduction through the Clean Development Mechanism (CDM) is being fulfilled.

According to the paper, the CDM is promoted as a mechanism bringing into play cheaper emissions reduction options in developing countries, compared to those that can be realized in developed countries. It argues that the broad array of emissions reduction options exploited simultaneously may not be compatible with this assumption, and notes growing data challenging the cost efficiency of emissions reduction options exploited. It underscores that the most prevalent investments in CDM are cost inefficient reductions in wind and hydro projects.

The paper also notes that in most cases, the marginal cost of abatement is not an investment driver. It calls for rethinking the approach to promoting emissions reduction in developing countries, to align them 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 emissions reduction. [Publication: Penny Wise, Pound Foolish?]