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Home Publications Blogs Beat the Press The "Clean Development Mechanism" Can Be Gamed: Who Could Have Known?

The "Clean Development Mechanism" Can Be Gamed: Who Could Have Known?

Thursday, 09 August 2012 04:26

The NYT has an article on how companies in the developing world have increased production of coolants that contribute to global warming in order to get credits for destroying them. This is the outcome of some of the perverse incentives created by the Clean Development Mechanism in the Kyoto agreement.

This sort of gaming was predictable and predicted at the time. The basic problem was that there was no well-developed baseline against which to assign credits to ensure that money was only paid in situations where it actually led to emissions reductions.

The article included a comment from David Doniger, a member of the "who could have known crowd" who is cited as an expert:

"'I was a climate negotiator, and no one had this in mind,' said David Doniger of the Natural Resources Defense Council. 'It turns out you get nearly 100 times more from credits than it costs to do it. It turned the economics of the business on its head.'"

It would have been worth mentioning that Doniger is wrong, people did have this in mind. It was just the case that the people in positions of authority, and who were cited as experts on the topic, apparently did not understand that this sort of gaming would inevitably result from the deal they crafted.

Comments (2)Add Comment
Pay-Me-To-Stop Markets: Where Will It End?
written by Last Mover, August 09, 2012 6:23
The opportunities are endless when negative externalities can only be avoided if third parties pay off the perpretrators to stop.

Just end all regulations of limits and convert them to pay-me-to-stop markets. Watch the jump in growth from the supply side as thousands of entrepreneurs discover ways to harm their fellow Americans as they demand payment to cease and desist.

The added jobs for attorneys alone could cure the deep recession, especially as the market develops for two party transactions from direct threats and harm, no third party required.

Finally, the truth is out about how Romney plans to create all those jobs. Private equity buy outs are finished. The next big thing is pay-me-to-stop harm markets.
Save us from the Lawyers!
written by Hugh Sansom, August 09, 2012 2:40
David Doniger, not surprisingly, is a lawyer. I'm astonished how few economists are consulted by the EPA or by not-for-profits like the NRDC — of any kind, even conservative ones. As with most public forums, those economists who are (rarely) consulted are overwhelmingly conservative or 'moderate' (meaning conservative in the contemporary US). Predictable outcomes like leakage or perverse incentives are missed by negotiators who think complete contracts can be specified.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.