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Climate change mitigation and international finance: the effectiveness of the Clean Development Mechanism and the Global Environment Facility in India and Brazil

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Abstract

This study analyzes the effectiveness and efficiency of the two principal United Nations (UN) climate change mitigation finance mechanisms, the Clean Development Mechanism (CDM) and the Global Environment Facility (GEF). The realised abatement and costs of the two mechanisms in India and Brazil (using data from 28 GEF and 233 CDM project documents) are compared with theoretical marginal abatement cost curves, based on bottom-up technology studies. We find that both mechanisms have focused on negative and low-cost abatement potential but still leave substantial theoretical potential in this cost range untapped. CDM has more effectively harvested abatement potential of industrial gases and methane emissions, whereas GEF has more successfully targeted demand-side energy efficiency (EE) and transport emission reduction opportunities. CDM has excelled at capturing abatement potential in areas with a limited understanding of abatement, highlighting the shortcomings of theoretical estimates (such as Marginal Abatement Cost Curves) and the benefits of a market mechanism. In some sectors and technologies (particularly renewable energy), the two mechanisms overlapped, which suggests a need for better coordination in the future.

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Notes

  1. However, it is questionable if funding for incremental mitigation costs will be substantially increased given political and economic constraints (WRI 2011), the consideration that a substantial share will be earmarked for adaptation and the possibility that a significant proportion will be raised from private sources. Only a small part of private finance can be expected to cover incremental costs (e.g. donations) and most of it will be part of the even larger US$ 400–600 of annual low-carbon investment needed by 2030 (Bierbaum et al. 2010). Carbon markets could help make up some of incremental costs gap, as they have already enabled several billions of US$ to be transferred annually through the Clean Development Mechanism (CDM). Their ability to channel funding though is questionable in the future given uncertain carbon credit demand from industrialized countries post-2012 (Linacre et al. 2011).

  2. Hosier et al. (2010) assesses the overlap of public and private finance, using a small sample of World Bank projects, but his analysis is largely theoretical.

  3. India and Brazil are the second and third most important CDM countries, hosting more than a third of CDM projects (URC 2012), and the second and fifth largest recipient of GEF climate change grants (GEF 2012).

  4. Programme of Activities, which register a programme instead of an activity with a limited project boundary, were not included in this analysis as they have a limited track record.

  5. In practice, it has been difficult to calculate the incremental costs

  6. We use here a very broad definition of transaction costs, encompasses costs from all activities emerging from information deficits such as search for information, bargaining, making of contracts, monitoring, enforcing and protection of property rights, also costs of political organization, political lobbying, advertisement and information costs related to policy and legal risks (see Eggertsson 1990)

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Acknowledgments

The authors would like to extend their gratitude to Clive Potter (Imperial College, Centre for Environmental Policy), Axel Michaelowa and Paula Castro (University of Zurich) for their helpful contributions to the article.

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  1. Centre for Environmental Policy, Imperial College London, South Kensington Campus, London, SW7 2AZ, UK

    Nicholas Tatrallyay

  2. Department of Political Science, University of Zurich, Affolternstrasse 56, Zurich, 8050, Switzerland

    Martin Stadelmann

  3. Center for Comparative and International Studies, University of Zurich & ETH Zurich, Zurich, Switzerland

    Martin Stadelmann

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Tatrallyay, N., Stadelmann, M. Climate change mitigation and international finance: the effectiveness of the Clean Development Mechanism and the Global Environment Facility in India and Brazil. Mitig Adapt Strateg Glob Change 18, 903–919 (2013). https://doi.org/10.1007/s11027-012-9398-y

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