Measuring host country risk in CDM and JI projects: a composite indicator

What are the risks associated with Clean Development Mechanism (CDM) and Joint Implementation (JI) projects and how do these risks vary between countries? A composite indicator is presented for guiding procurement decisions in the carbon market and representing host country risks in emissions trading models. The indicator contains variables from a broad range of sources measuring the institutional environment for the Kyoto mechanisms, the regulatory environment, and the economic environment. Based on the indicator scores for 143 countries, rankings are produced for CDM and JI host countries. The host country risks of investing in JI projects are lowest in New Zealand, Denmark and Sweden. At the top of the CDM ranking are India, China, Mexico, Brazil and Chile. These results are similar to other rankings for CDM host countries, but not for JI host countries. This is due to the fact that-unlike other rankings-the mitigation potential is not taken into account.