The Integrity of the Clean Development Mechanism - an interdisciplinary study on delegation

University essay from Lunds universitet/Nationalekonomiska institutionen

Abstract: The Clean Development Mechanism (CDM) is a mechanism under the Kyoto Protocol, which allows industrialised countries that have binding emission targets to invest in emission reduction projects in non-industrialised countries. These CDM investments generate certified emission reductions (CERs), which can be used by the industrialised countries towards meeting their own targets. The dual objective of the CDM is: 1) to assist developing countries to achieve sustainable development and contribute to the UNFCCC’s ultimate objective of stabilising the global concentrations of GHG emissions, and 2) to help the developed countries achieve their emission reduction targets. Ensuring that the CDM projects actually reduce emissions is fundamental for the environmental integrity of the CDM, and the task of validating and verifying/certifying the CDM project activities emission reductions has been delegated by the CDM Executive Board (EB) to the Designated Operational Entities (DOEs). Delegation of authority can create problems, therefore by using the principal-agent model and an interdisciplinary approach to delegation theory this thesis sets out to examine what problems may arise when the EB delegates authority to the private profit-driven DOE’s, and whether these problems impedes the environmental integrity of the CDM. In conclusion the problems that occur, which affect the integrity of the CDM, are problems associated with the delegation design, i.e. the framework that defines the delegation relationship between the EB and the DOEs. The main problems relate to the fact that the DOEs are profit-driven, which implies their preferences differ from the EBs. The delegation problems within the CDM can be mitigated if the delegation design is amended.

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