The clean development mechanism in a globalized carbon market

This paper discusses the role of the Clean DevelopmentMechanisms (CDM) on the market for carbon quotas and countries' commitments to reduce their carbon emission levels. We show that the CDM contributes to an efficient funding of clean technology investments in least developed countries. How- ever, the CDM is not neutral on the global level of carbon emissions as it entices countries to raise their emission caps. The CDM may also make inap- propriate the inclusion of any country that makes no emission target commit- ment in the climate change protocol (like the Kyoto protocole). It can even make inefficient a country's decision to commit to an emission target.