Kyoto's Clean Development Mechanism for Emissions Reduction in Developing Economies

This paper investigates the effectiveness of Kyoto's Clean Development Mechanism (CDM) on emissions reduction in developing countries. While global responses are needed for global problems, global environmental policies are likely to have heterogeneous impacts. Understanding this heterogeneity allows for more nuanced policy evaluation and design. We use a quantile difference-in-differences approach to uncover where the CDM does and does not have an impact. Evaluating a balanced panel of 104 developing countries over the period 1996-2016, we find that the CDM has a strong impact only at low quantiles of the distribution of greenhouse gas (GHG) emissions. In particular, low-emitting countries show a 10% reduction in emissions, whereas countries in the 25th - 75th percentiles of emissions exhibit a 3-6% increase in emissions over the post-policy period. Emissions intensity and emissions per capita also experience mixed results with strong reductions in the lowest quantile but increases at the highest. Decomposition across GHG emissions types indicates mixed results across the distribution for each; with carbon dioxide and fluorinated gases reducing for bottom quantiles, but only fluorinated gases reducing for the upmost quantile. Heterogeneity of the policy effect is observed across regions, the CDM is associated with: reduced emissions in the Latin America and Caribbean region; reduced emissions for all but the top quantile in Asia-Pacific; and higher emissions in Africa. Identification of  heterogeneity across subgroups of countries can assist with effective policy design and implementation of future global environmental policies.