خطرات بازار کربن و پاداش ها: ادراکات شرکت در تصمیمات سرمایه گذاری CDM در برزیل و هند

The carbon market experiences of Brazil and India represent policy success stories under several criteria. A careful evaluation, however, reveals challenges to market development that should be addressed in order to make the rollout of a post-2012 CDM more effective. We conducted firm-level interviews covering 82 CDM plants in the sugar and cement sectors in Brazil and India, focusing on how individual managers understood the potential benefits and risks of undertaking clean development mechanism (CDM) investments. Our results indicate that the CDM operates in a far more complex way in practice than that of simply adding a marginal increment to a project's internal rate of return. Our results indicate the following: first, although anticipated revenue played a central role in most managers' decisions to pursue CDM investments, there was no standard practice to account for financial benefits of CDM investments; second, some managers identified non-financial reputational factors as their primary motivation for pursuing CDM projects; and third, under fluctuating regulatory regimes with real immediate costs and uncertain CDM revenue, managers favored projects that often did not require carbon revenue to be viable. The post-2012 CDM architecture can benefit from incorporating these insights, and in particular reassess goals for strict additionality and mechanisms for achieving it.

Cutting global emissions that lead to climate change will be a paramount task in the 21st century. Limiting global average surface temperature increases to approximately 2 °C would entail global emissions cuts of at least 50–85% by 2050 (IPCC 2007); even an aggressive 50% reduction from 1990 levels would still carry a significant (12–45%) risk of exceeding this 2° threshold (Meinshausen et al. 2009). The resulting transition into a lower-carbon economy will require participation from all large emitters. In particular, emerging economies, as they invest in new energy supply technologies at a rapid rate, will be a decisive factor in realizing a low-carbon future. As such, policies to encourage low-carbon investment in these economies are an essential component of an effective global climate policy. The current dominant global climate policy approach relies on carbon emissions trading, and it. It is almost an article of faith that carbon markets will, via the invisible hand, spur the diverse and creative applications of new and existing technologies that are hoped for in this low-carbon transition. Yet this deterministic approach overlooks myriad cultural and institutional factors that can stymie, pervert, or enhance large-scale policy approaches. We have sought to address this gap by investigating firm responses to carbon markets in two major developing economies—Brazil and India. Based on extensive interviews with firm managers, government representatives, and other experts, we discuss in this paper differences in firm perceptions of the Clean Development Mechanism (CDM) across two countries, Brazil and India, and two sectors, sugar and cement. We report here findings from a sample of firms in four categories (Brazil-sugar, Brazil-cement, India-sugar, India-cement) that chose to invest in low-carbon technologies and seek carbon credits through the CDM policy mechanism. We describe their assessment of potential risks and benefits before they undertook CDM projects and outline the diversity of approaches they used in estimating the benefits to their firms from participating in this ambitious global carbon market.

Our results enable us to assess the factors that influenced a substantial number of firm decisionmakers within each of our target sectors. Among those firms that chose to engage with the CDM, three lessons emerge. First, most of the interviewees argued that financial benefits were their primary motivation for undertaking low-carbon CDM projects in both sectors and countries, but the processes of assessing benefits were diverse. For most areas, these financial benefits were expected to derive primarily from the CER revenue stream. For one group, however – Brazil sugar – the possibility of selling additional electricity into a deregulated electricity grid was potentially more lucrative than the CER revenue stream. In addition, we found that processes of assessing potential financial benefits were diverse and frequently did not adhere to textbook corporate finance approaches commonly deployed in international business circles. When asked to explain how they estimated financial benefits, only about half of respondents across the countries and sectors indicated that they did a net benefits calculation; only a small percentage mentioned internal rates of return or cost of capital. No managers mentioned the terms “discount rate” or “net present value”. Second, while many firms reported that additional financial benefits were their primary motivating factor, some firms pursued CDM even though they did not expect substantial financial benefits or viewed the project as roughly break-even or even incurring slight costs when all factors were accounted for (payments to consultants and DOEs, personnel time). Nevertheless, these firms continued with CDM projects, they argue, because they viewed benefits more broadly than simply financial return. The value and nature of these ancillary benefits varied according to the industry, country, and specific firm context, but nevertheless were the primary motivation for some participants. As just one example, some participants from Brazil-sugar mentioned that CDM could help counter what they felt was a negative (and usually unjustified) domestic perception of their industry related to its treatment of migrant labor. Others mentioned that CDM might be helpful for marketing their product to international audiences such as eco-conscious Europeans. Third, one of the primary risk factors weighing against these firms’ decisions was international regulatory jeopardy in the approval process, which in many cases led logically to a perverse policy outcome of non-additionality. Managers and consultants voiced a high degree of uncertainty about international regulatory approval—and in the specific case of Brazil, domestic approval at the DNA level. From the firm perspective, this uncertainty created obstacles to committing their resources to low-carbon projects. While one should exercise caution in attributing terminology to these actors, their behavior is consistent with increasing the hurdle rate or required internal rate of return for projects to be worthwhile, thus eliminating projects that might otherwise have been undertaken. What is more interesting, however, is that the presence of this substantial risk did not necessarily stop all projects; it did in many cases favor projects that could be made to look additional under approved methodologies but in fact were projects that the management was reasonably confident would provide benefits in the somewhat likely event that CER revenue did not materialize. From a game-theoretic approach, this response is not surprising, but it is undoubtedly a major mismatch to current policy goals. Our evidence indicates strongly that the uncertainty in regulatory processes at the international level greatly undermined the goals of additionality, even though the EB in both sectors made decisions to eliminate non-additional projects and thereby excluded what might have been seen as sensible, low-carbon investments. These lessons indicate that CDM, and carbon markets in general, operate in a far more complex way in practice than a simple marginal addition to a project’s IRR. Our results indicate that managers considering engaging with international carbon markets approached their decisions in ways that would not have been easily anticipated. First, they often do not necessarily account for financial benefits in a systematic way. Second, they considered non-financial factors even to the point of these being the primary motivation, and third, under fluctuating regulatory regimes with real immediate costs and uncertain future revenue streams, they tended to favor projects that were non-additional or only marginally additional. These results suggest several implications for policy and in particular post-2012 CDM architecture. Concerns voiced by firm managers about the growth in time to approval underscore the need to keep the bureaucracy efficient—when a firm manager is told that a project could take 1–2 years before CER revenues start to accrue, the desire to participate drops off substantially. Further hampering participation was the perception of capricious decisions at the Executive Board level. When managers view the EB process as an unpredictable gamble with a long delay and poor odds, they are not likely to initiate the process of beginning a project even if much of the financial risk of project development is assumed by a consultant. Some delay and some unpredictability are inherent with any crediting system, whether project-based or sectoral, but ongoing efforts to make the CDM bureaucracy more transparent and user-focused are clearly necessary for expanding participation while ensuring environmental integrity. In addition, because the national level authorities can create additional hurdles for projects, limiting the time that projects are under review could also enhance participation and satisfaction with the process. Finally, and perhaps most fundamentally, the concept of additionality, while strictly defined, is always subject to some interpretation because of the necessity of comparing realized projects to a counterfactual. This circumstance creates confusion within industries about the seemingly arbitrary judgments of how similar projects in different countries or even geographic locations are judged under different rules. As such, the goal of the CDM with respect to additionality may warrant reconsideration. Future iterations of CDM and developments of Executive Board regulations would do well to reconsider their goals for additionality and their mechanisms for achieving it.