Explaining the differential distribution of Clean Development Mechanism projects across host countries

The Clean Development Mechanism (CDM) of the Kyoto Protocol represents an opportunity to involve all developing countries in the effort to reduce greenhouse gas emissions while also promoting sustainable development. To date, however, the majority of CDM projects have gone to emerging markets such as China, India, Brazil, and Mexico, while very few least developed countries have hosted projects. This paper investigates the differential distribution of CDM activities across countries. We develop a conceptual model for project profitability, which helps to identify potential country-level determinants of CDM activity. These potential determinants are employed as explanatory variables in regression analysis to explain the actual distribution of projects. Human capital and greenhouse gas emission levels influenced which countries have hosted projects and the amount of certified emission reductions (CER) created. Countries that offered growing markets for CDM co-products, such as electricity, were more likely to be CDM hosts, while economies with higher carbon intensity levels had greater CER production. These findings work against the least developed countries and help to explain their lack of CDM activity.