Working Papers in Economics,
University of Gothenburg, Department of Economics

Abstract: There is a danger that the CDM will fail to live up to its goals, namely reduction of greenhouse gas emissions and enhanced sustainable development. Sustainability labeling is a promising strategy to hedge against such failures. Labels could also serve as a business risk-hedging tool. The existing labels for the CDM are not comprehensive enough, however. A two-tiered stakeholder participatory approach with national flexibility under an international umbrella could be a promising option. Due to the necessary bureaucracy this might not be feasible. Labels in the spirit of the existing approaches – addressing only restricted aspects of sustainability or not applicable to all sectors may be a second best option. Other instruments for the further regulation of the CDM, such as a profit tax, should therefore be discussed as well.

Keywords: CDM; labels; sustainability indicators; risk; equity

JEL-codes: L15; M14; O13; Q01; Q54

16 pages, September 20, 2006

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