The Long-Term Requirement for Clean Development Mechanism Forestry and Economic Liability

Publisher Website
Google Scholar
Abstract
The Clean Development Mechanism (CDM) of the Kyoto Protocol allows developed countries to gain greenhouse gas emission reduction credits by sponsoring projects in developing countries. The CDM requires such credits to be granted only to projects that produce long-term benefits to climate change. However, countries that host CDM projects may be reluctant to engage in long-term projects for fear of sacrificing national sovereignty, a concern particularly acute in land-use efforts such as forest conservation. One solution is to use economic liability in CDM contracts, delaying payments to parties to encourage long-term contracting. We evaluate CDM-sponsored forest conservation using several types of economic liability schemes. We find that seller liability has intrinsic advantages over other types of liability contracts. We then propose a modified seller liability contract for CDM forestry that is more profitable to host countries than is pure seller liability, while still providing sufficient long-term incentives.