Why the CDM, While Promising, is a Long Way from Being a ‘First-Best’ Market Mechanism

windIn economics, pollution is looked at as negative externality which induces cost into a system for almost everyone. Fortunately, a host of measures are being devised to address pollution on communal, national and international levels. The Clean Development Mechanism (CDM) is one such measure, but has quite a few problems associated with it, which shall be the concern of this post. I will outline the mechanism, elaborate on its function and  then consider Hepburn’s problem of CER markets.

The CDM (full version – pdf)