Exploring the factors affecting the Clean Development Mechanism in the developing countries

The primary goal of the Clean Development Mechanism (CDM) of the Kyoto Protocol is to reduce the costs of greenhouse gas emission abatement for Annex I countries (developed countries). Furthermore, the mechanism aims at sustainable development in the developing economies. However, there has been an uneven distribution of CDM projects among the developing countries, and a major share has gone to only a few developing economies such as India, China, Brazil and Mexico. In this paper, we explore the factors that have affected the number and scope of CDM activities in the developing countries. We use the Poisson and censored regressions as our estimation methods. Our results suggest that the quality of institutions and the size of the potential host country have been particularly important determinants of the number of CDM projects hosted so far in the developing countries. The main policy implications include the importance of increasing the pace for fulfilling the institutional requirements of the CDM, improving the government structure to become free from corruption and engaging more in capacity building in order to attract more CDM projects. But improvements also in the infrastructure, most specifically in electricity capacity, are crucial in order to make the CDM activities viable in the developing countries.