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Assessing China’s price review policy on Clean Development Mechanism projects

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Abstract

The Kyoto Protocol’s Clean Development Mechanism (CDM) allows developed countries to meet part of their obligational emission reductions by carrying out emission reduction projects in developing countries. China imposed a price floor to the CDM carbon credits produced in China through its price review policy. Scholars have not agreed on the purpose of China’s price review policy. With a theoretical model and a coherent empirical study, the present study shows that the price floor imposed by China’s price review is more likely to protect those domestic project owners against price discrimination, rather than to distort the CDM market. Nevertheless, China’s price review has its own flaws. Although a regression study shows month of approval, types of projects and location of project can explain 55% of price floor designation, the operation of price review remains quite random and unpredictable in individual cases. This would bring extra bureaucratically uncertainty on its way to curb market uncertainty. Its function can be fulfilled by alternative policy tools with better economic efficiency and legal legitimacy, such as mandatory price disclosure and trading forum, which doesn’t have such drawback, but still be able to alleviate possible price discrimination in individual cases.

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Notes

  1. China’s dominant role in the CDM market is associated with a general concern, namely the uneven performance across CDM host countries. A literature review in this regard can be found in Zhu (2012).

  2. The impact of EU banning on HFC23 and N2O projects is controversy, as those projects would be able to recover the initial investment within a two-year or even shorter duration, and make net profit since then (Zhu 2014). If emitters are homo oeconomicus, the EU ban might induce them to cease operation of industrial gas treatment and let HFC23 and N2O emit into atmosphere, which was hardly the intention of the EU policy maker.

  3. A brief literature review in this regard can be read in Zhu and Tang (2015).

  4. A graph similar to Fig. 1a has been employed by Vasa (2011), but with the aim at visualizing the cost-saving through importing CDM carbon credits under quantitative limit.

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  1. Chair of International Politics, University of Potsdam, Potsdam, Germany

    Jinshan Zhu

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  1. Jinshan Zhu
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Correspondence to Jinshan Zhu.

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Zhu, J. Assessing China’s price review policy on Clean Development Mechanism projects. Eur J Law Econ 43, 285–316 (2017). https://doi.org/10.1007/s10657-016-9550-3

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