Kyoto's Clean Development Mechanism for Emissions Reduction in Developing Economies

Abstract

This paper investigates the effectiveness of Kyoto's Clean Development Mechanism (CDM) on emissions reduction in developing countries. Whilst global responses are needed for global problems, global environmental policies are likely to have heterogeneous impacts. Understanding this heterogeneity allows for more nuanced policy evaluation and design. We use a quantile difference-in-differences approach to uncover where a significant early global mechanism for implementing climate policy, the CDM, does and does not have an impact. Evaluating a panel of 104 developing countries over the period 1996–2016, we find that the CDM had a strong impact only at lower quantiles of the distribution of greenhouse gas (GHG) emissions. In particular, countries in the 10th and 25th quantiles show a 9% reduction in emissions, whereas countries in the 90th quantile exhibit a 21% increase over the post-policy period. Emissions intensity and emissions per capita also experience mixed results with strong reductions in the bottom half of the distribution but increases at the very top. Decomposition across GHG emissions types indicates mixed results across the distribution for each; with carbon dioxide results acting similarly to aggregate emissions but fluorinated gases reducing across the distribution. Heterogeneity of the policy effect is observed across regions, the CDM is associated with: reduced emissions in the Latin America and Caribbean region; weaker reductions in Asia–Pacific; and mixed results in Africa. Identification of heterogeneity across subgroups of countries can assist with effective policy design and implementation of future global environmental policies.