The NYT has a good piece showing the inefficiencies associated with the "Clean Development Mechanism" that some misguided geniuses included in the Kyoto agreement. The premise is reasonable: it's generally cheaper to reduce emissions in poor countries than rich countries, therefore why not allow polluters in rich countries to pay to reduce emissions in poor countries, therefore why not allow polluters in rich countries to pay to reduce emissions in poor countries, as an alternative to reducing their own emissions? The problem with the CDM is that it applies this principle on a case by case basis, which is extremely inefficient and also creates many opportunities for fraud an abuse. The obvious alternative would have been to assign the developing countries emission quotas under Kyoto that are essentially equal to their baseline growth path. Then allow them to sell any reductions against this baseline to the rich countries. This would have given the developing countries very large incentives to find ways to reduce emissions with much less opportunity for abuse (countrywide emissions can be reasonably well measured). My environmentalist friends have always insisted that developing countries refused to be subject to Kyoto limits. However, setting limits that are just equal to baseline emissions growth, and making them sellable, is effectively just giving developing countries money. I find it hard to believe that the leaders of developing countries are so resistant to accepting money. I suspect that if this deal were ever laid on the table, any developing country leaders who vigorously held out against accepting money would soon be out of work. (I did a short paper on this some time back with my friend Jim Barrett.)
--Dean Baker
