Transaction costs of unilateral CDM projects in India–results from an empirical survey

Recently, transaction costs in the context of the Clean Development Mechanism (CDM) gained considerable attention as they were generally perceived to be significantly higher than for the other Kyoto Mechanisms. However, empirical evidence on the amount of transaction costs of CDM projects is very scarce. This paper presents the results from an empirical survey designed to quantify transaction costs of potential non-sink CDM projects in India. The definition of transaction costs of CDM projects was derived from recent literature and observations made in the current market for Certified Emission Reductions (CERs). During the survey, parts of transaction costs of 15 projects were quantified. An assessment of the results showed that specific transaction costs depend, to a large extent, on economies of scale in terms of total amount of CERs generated over the crediting period. Total transaction costs were quantified for seven projects. The costs range from 0.07 to 0.47 $US/t CO2. As the projects have an emission reduction between 0.24 Mt CO2 and 5.00 Mt CO2 over the crediting period, the results support the assumption of Michaelowa et al. (Climate Policy 3 (2003) 273) that projects with emission reductions smaller than 0.20 Mt CO2 are not economically viable at current CER prices.