Prevailing technologies and locations of CDM projects: the current situation compared with expectations

Abstract

The Clean Development Mechanism is one of the flexible mechanisms in the Kyoto Protocol. In this paper the prevailing technology types and project locations of CDM projects are analyzed. The prevailing technology types are hydropower (24% of all projects), followed by bio- and landfill gas (16%). The distribution can be generally explained by the values for the Internal Rates of Return (IRRs), including the revenues from CERs (Certified Emission Reductions), of all of these technology types, except for hydropower. Besides the fact that landfill CDM projects generally have an attractive IRR, an additional advantage of this type is the fact that methane emissions are reduced, resulting in higher revenues from CERs.

The most popular CDM countries are Brazil, India, Costa Rica and Panama. One of the indicators for a high suitability of a country is a high country-specific Carbon Emission Factor. An analysis shows that more than 50% of all electricity CDM projects are located in a country whose CEF is among the 40% lowest. It can be concluded that other factors must play a more important role in those cases.

Also the sensitivity of the IRR has been tested in a case project by varying the CER price, the MWh price for electricity, and the total amount of waste used. All three parameters are approximately linearly related to the IRR. It can be concluded that all three determinants of the IRR that are analyzed have a significant influence.