Cleaner Generation, Free Riders, and Environmental Integrity: Clean Development Mechanism and the Power Sector

This study provides a first-cut estimate of the potential carbon emissions impacts of the Clean Development Mechanism (CDM), focusing on new power plants in the power sector of non-Annex 1 countries. We conclude that while the CDM could induce some legitimate lower-emission electricity generation in host countries, it could also give rise to a considerable amount of spurious emissions allowances by crediting non-additional ("free-rider") activities—activities that would have taken place even in the absence of the CDM. We find that under some plausible CDM regimes, the CDM could serve primarily as an instrument for generating spurious credits, and only secondarily as an instrument for economic efficiency or sustainable development.