The Clean Development Mechanism and Sustainable

Development: A Panel Data Analysis.

Yongfu Huang and Terry Barker

February 2009

Tyndall Centre for Climate Change Research Working Paper 130

The Clean Development Mechanism and Sustainable Development:
A Panel Data Analysis

Yongfu Huang and Terry Barker

Tyndall Working Paper 130, February 2009

Please note that Tyndall working papers are "work in progress". Whilst they are
commented on by Tyndall researchers, they have not been subject to a full peer review.
The accuracy of this work and the conclusions reached are the responsibility of the
author(s) alone and not the Tyndall Centre.
 The Clean Development Mechanism
and Sustainable Development:
A Panel Data Analysis∗
Yongfu Huanga† Terry Barkera
a
4CMR, Department of Land Economy, University of Cambridge
19 Silver Street, Cambridge CB3 9EP

February 17, 2009

Abstract
The Clean Development Mechanism (CDM) of the Kyoto Proto-
col is designed to allow the industrialised countries to earn credits
by investing in greenhouse gas (GHG) emission reduction projects in
developing countries, which contribute to sustainable development in
the host countries. This research empirically investigates the long-run
impacts of CDM projects on CO2 emissions for 34 CDM host coun-
tries over 1990-2007. By allowing for considerable heterogeneity across
countries, this research provides strong evidence in support of a signif-
icant effect of CDM projects on CO2 emission reductions in the host
countries. It offers ample recommendation for improving CDM devel-
opment and serves to encourage the developing countries to strengthen
their national capacity to effectively access the CDM for their sustain-
able development objectives.
Keywords: Clean Development Mechanism; CO2 Emissions; Het-
erogeneous Dynamic Panels
JEL Classification: O19; Q54; Q56

∗
We thank Cathy Goss, Lynn Dicks, Esteve Corbera and seminar participants at the
2008 international sustainable development conference at Strasbourg (France) for valuable
information and helpful suggestions. The usual disclaimer
†
Corresponding author: Email: yh279@cam.ac.uk; Tel: 0044-1223 764873; Fax: 0044-
1223 337130; URL: http://www.landecon.cam.ac.uk/yh279/huangyf.htm.

1
1 Introduction

Over the past 20 years, how to tackle climate change and achieve sustainable
development has become one of the most important challenges facing the in-
ternational community. As part of the Kyoto response towards mitigation
of global warming, the Clean Development Mechanism (CDM) was designed
to create opportunities for synergies between cost-effective climate change
mitigation and sustainable development. However, the question on whether
the CDM is doing what it promises to do has given rise to much controversy.
The research reported below empirically examines whether CDM projects
contribute to sustainable development in developing countries, based on dy-
namic heterogeneous panels for 34 CDM host countries over 1990-2007.
As a global effort to respond to climate change and protect the environ-
ment, the Kyoto Procotol was introduced in 1997, coming into force on 16
February 2005. The Protocol calls for legally-binding limits on greenhouse
gas (GHG) emissions by the developed countries (or the Annex I countries)
of 5.2% below their 1990 levels over the first commitment period (i.e. 2008-
2012). The CDM is an innovative cooperative mechanism under the Kyoto
Protocol. As part of the emerging global carbon market, the CDM aims to
achieve the dual aims of assisting developing countries in achieving sustain-
able development and assisting developed countries in achieving compliance
with their GHGs emission reduction commitments.1 The number of projects
proposed as candidate CDM projects has been steadily rising. By the end
1
At the global level, the CDM projects do not explicitly lead to a net decline in carbon
emissions; instead, the emission reductions the CDM projects promise to bring about are
essentially a “zero-sum” game in the sense that these reductions merely take place in a
different place, not in the Annex I countries but in the non-Annex I countries. Therefore,
whether or not the CDM contributes to the mitigation of global warming relies on the
extent to which it results in reduced emissions in developing countries.

2
of November 2008, there were 4252 CDM projects in the pipeline.2
The CDM is the only Kyoto mechanism that involves developing coun-
tries in the climate change negotiations. The CDM is expected to stimulate
foreign direct investment and speed up the transfer and deployment of low
and zero carbon technologies from developed countries to developing coun-
tries. It is also anticipated to arouse business interest and engagement from
the private sector into the issue of climate change mitigation via environ-
mentally friendly investment, and ultimately help direct the host countries
onto a lower carbon trajectory.
However, there has been much controversy as to the impacts of the CDM
on sustainable development in developing countries. Examples are Banuri
and Gupta (2000), Kolshus et al. (2001), Brown et al. (2004), Kim (2004),
Cosbey et al. (2005), Sutter and Parreño (2007) and Boyd et al. (2007) to
mention a few.3 The existing research in this field is made up of one group
of research supporting positive impacts, another group of research indicat-
ing negative impacts, and some having mixed views. Some forward-looking
research (for example Banuri and Gupta, 2000) suggests that CDM projects
could cause the widespread adoption of less GHGs-intensive technologies in
non-Annex I countries, which would have positive implications for emission
reductions in the non-Annex I countries. However, recent studies, at either
the aggregated levels or the project level, suggest that, left to market forces,
the CDM does not significantly contribute to sustainable development be-
cause the trade-off between the two benefits of the CDM falls in favor of
cost-effective reduction benefits, and neglects the sustainable development
benefits, which are not monetised in the carbon market (Sutter and Parreño,
2
Data from the UNEP Risoe Centre (2008).
3
See Olsen (2007) for a recent review of literature on the sustainable development
contributions of the CDM.

3
2007; Kolshus et al. 2001). Since it is crucial to examine whether the CDM
is fulfilling its sustainable development objective, this research carries out a
panel data analysis into this issue.
One difficulty facing this research is that the actual definitions of sustain-
able development vary across countries. As decided by the Kyoto Protocol
that it is the prerogative of host country to determine whether a CDM
project contributes to its sustainable development objective, different CDM
host countries define different sustainable development criteria according to
their development priorities. Olsen (2007) shows that the sustainable devel-
opment contributions of CDM projects can be evaluated at least in economic,
social and environmental dimensions, and “there is no single, authoritative
and universally accepted approach or methodology applicable to any CDM
project regardless of project type or location”.4 Given that the primary
objective of the CDM is to combat global warming, this research focuses on
the environmental dimension of sustainable development in terms of CO2
emission reductions.
More specifically, we empirically evaluate whether CDM projects lead to
a decline in CO2 emissions, at aggregated level, for 34 CDM host countries
over 1990-2007. Within an Environmental Kuznets Curve framework, this
research investigates the long-run and short-run dynamics of CDM project
development, while controlling for country specific effects. This research
employs the pooled mean group procedure to identify a common long-run
effect for CDM projects, while allowing for short-run dynamics to differ
across countries. This research provides strong evidence in support of a
decline in CO2 emissions associated with CDM projects. The finding of this
4
Some approaches have been proposed for sustainability assessment of CDM projects,
but they are qualitative in nature (Olsen and Fenhann, 2008; Cosbey et al., 2005; Anag-
nostopoulos et al., 2004).

4
research adds to the growing debate on this topic, and serves to encourage
the developing countries to strenghen their national capacity to effectively
access the CDM.
The remainder of the paper proceeds as follows. Section 2 describes the
data and shows some preliminary evidence. Section 3 presents the econo-
metric methods. The empirical results are reported in Section 4. Section 5
concludes.

2 Data and preliminary evidence

This section outlines the measures and data for CO2 emissions, CDM, and
GDP.
The dependent variable is the logarithm of CO2 emissions per capita,
denoted by CO2 . This analysis mainly makes use of the CO2 emissions
from fuel combustion (by sectoral approach), in total as well as the emissions
from energy sector, manufacturing industries and households, tertiary and
agriculture sectors, respectively. Data on CO2 emissions and population
from 1990 up to 2007 are from the Global Energy Market Data (2008) of
Enerdata. To check for robustness, it also considers the CO2 emissions per
capita from fuel combustion (by reference approach), which are taken from
Enerdata as well.
The independent variable is an indicator (dummy) variable for the Clean
Development Mechanism, simply denoted by CDM. It takes the value of
one in the year when a country has a CDM project in the pipeline and in
all years afterwards, and zero otherwise. The CDM projects in the pipeline
include not only those called “confirmed projects” that have been at the
registration stage, either registered or requested registration, but also those
called “probable projects” that are at the validation stage, waiting to be

5
registered and implemented over the next 3 years. Data on CDM projects
in the pipeline are from the UNEP Risoe Centre (2008).
To reflect the so-called Environmental Kuznets Curve, which suggests
an inverse U-shaped pattern between carbon emissions and economic de-
velopment, this analysis includes GDP per capita in log and its squared
term in the regression, denoted by GDP and GDP2 , respectively. Data on
GDP in US dollars at constant price and exchange rate (2005) per capita
over 1990-2007 are taken from the Global Energy Market Data (2008) of
Enerdata.
The whole sample includes 34 CDM host countries as listed in the Ap-
pendix Table 1. We exclude the CDM host countries which have their first
CDM projects in the pipeline after year 2006.
Since renewable energy, biomass/biogas, energy efficiency are among the
most popular project types to date, we present in Figure 1 some simple evi-
dence on the CO2 emissions from energy sector for 16 CDM host countries.5
The upper chart of Figure 1 displays the cross-country median CO2 emis-
sions per capita 4 years before and after having their first CDM projects in
the pipeline. The lower chart of Figure 1 plots the coefficients on the fixed ef-
fect estimates of 8 time dummies before and after the year when they started
to have their first CDM projects in the pipeline to reflect the dynamic effect
of the CDM development. The regression is estimated by OLS in which the
unobserved country specific effects, time effects and control variables such
as GDP per capita in log and GDP per capita in log squared are included.
The two figures show that CO2 emissions in the sample countries in general
move upwards sharply prior to having CDM projects in the pipeline. After
having CDM projects in the pipeline, CO2 emissions have been shown to
5
To facilitate a before-and-after event study, 16 CDM host countries are selected which
had their first CDM projects in the pipeline before 2005.

6
Figure 1: CO2 emissions in energy sector before and after having CDM projects
Cross−country median carbon emissions per capita
−.4
CO2 emissions per capita (in log)
−.7 −.6 −.5

2000 2002 2004 2006 2008

year

Fixed effect estimates of CO2 emissions per capita

.25
CO2 emissions per capita (in log)
.1 .15 .05.2

2000 2002 2004 2006 2008

year

Note: 16 CDM host countries having their first CDM projects in the pipeline by the end
of 2004. Variables and data sources are described in the text. Upper figure shows the
cross−country median CO2 emissions per capita in energy sector for these countries
while the lower figure plots the coefficients of fixed effect estimates of 8 time dummies
around the year when their first CDM projects were in the pipeline. The regression is
estimated by OLS in which the country effects, time effects, GDP per capita in log and
GDP per capita in log squared are included.
move up slowerly in the upper chart and immediately experience a drop
in the lower chart. The charts vividly portray the main features of CO2
emissions before and after CDM projects are made available. The effect of
CDM projects on CO2 emission reductions, at least in the short run, has
been observed. However, this, alone, is not very convincing evidence. A
more detailed econometric analysis of the relationship between CDM and
CO2 emissions will be conducted in what follows, based on panel data of 34
CDM host countries over 1990-2007.

3 Econometric methods

This analysis studies the impacts of CDM projects on CO2 emissions in

34 host countries over the period from 1990 to 2007. Since we are dealing
with a very dynamic process in which the geographic distribution of CDM
projects has been observed as uneven, and the CO2 emissions differ across
countries, we need a unique method by which these features can be better
captured. This section sets out a methodology that accounts for heteroge-
neous dynamic panels.
We assume the interactions between CDM projects and CO2 emissions
are represented by the unrestricted autoregressive distributed lag ARDL(p,
q, q, q) systems:

p
X q
X
CO2it = αij CO2i,t−j + β ij CDMi,t−j +
j=1 j=0
Xq Xq
γ ij GDPi,t−j + δ ij GDP2i,t−j + θi t + μi + vit
j=0 j=0
i = 1, 2, ..., 34 and t = 1, ..., 18 (1)

where CO2it is the dependent variable and CDMit , GDPit and GDP2it

8
are the explanatory variables, as described in section 2. t is a time trend.
μi are the unobservable country specific effects. vit are errors assumed to
be serially uncorrelated and independently distributed across countries. We
allow for richer dynamics in the representations to control for business cycle
influences.
Following Perman and Stern (2003), Müller-Fürstenberger and Wagner
(2007) and Wagner and Müller-Fürstenberger (2008), we assume that the se-
ries of CO2it , CDMit , GDPit and GDP2it are integrated, and cointegrated
for any individual countries, therefore vit is a stationary process for all i. As
shown by Engle and Granger (1987), there must be a vector error correction
representation governing the co-movements of these series over time. The
corresponding error correction equation to Equation (1) is as follows:

à 0 0 0 !
0 β ij γ ij δ ij
4CO2it = αij CO2i,t−1 + 0 CDMit + 0 GDPit + 0 GDP2it
αij αij αij
p−1
" 1 #
X X
− ( αim ) 4 CO2i,t−1
j=1 m=2
⎡ ⎤
Xq−1 1
X
− ⎣( β im ) 4 CDMi,t−1 ⎦
j=0 m=j+1
⎡ ⎤
Xq−1 1
X
− ⎣( γ im ) 4 GDPi,t−1 ⎦
j=0 m=j+1
⎡ ⎤
Xq−1 1
X
− ⎣( δ im ) 4 GDP2i,t−1 ⎦
j=0 m=j+1
+μi + vit

i = 1, 2, ..., 34 and t = 1, ..., 18 (2)

where

9
 ⎛ ⎞
p
X
0
αij = − ⎝1 − αij ⎠
j=1
q
X
0
β ij = β ij
j=0
Xq
0
γ ij = γ ij
j=0
Xq
0
δ ij = δ ij
j=0
0 0 0
0 β ij γ ij δij
where αij is the coefficient for the speed of adjustment. 0 , 0 , and 0
αij αij αij
are the long-run coefficients for CDMit , GDPit and GDP2it , respectively,
Pq P
q P
q
while β im , γ im , and δ im are the short-run coefficients for
m=j+1 m=j+1 m=j+1
CDMit , GDPit and GDP2it , respectively.
To analyze a set of panel data with large time and large cross-sectional
dimensions, a number of methods have been proposed in the literature, for
example the within groups (WG) estimator, mean group (MG) estimator
due to Pesaran and Smith (1995) and pooled mean group (PMG) estimator
due to Pesaran et al. (1999).
The WG estimator is consistent for the dynamic homogeneous model
when time series dimemsion T is large, as cross-sectional dimention N→∞
(Nickell, 1981). However, the WG estimator is based on rather restrictive
assumptions in terms of the homogeneity of all slope coefficients and error
variances, which are often not consistent with the reality for this context.
Here the divergent patterns of CO2 emissions, the development of CDM
projects, and the level of income are observed across countries.
The MG approach instead allows all slope coefficients and error vari-
ances to differ across countries, having considerable heterogeneity. The

10
MG approach applies an OLS method to estimate a separate regression for
each country to obtain individual slope coefficients, and then averages the
country-specific coefficients to derive a long-run parameter for the panel6 .
For large T and N, the MG estimator is consistent. With sufficiently high
lag order, the MG estimates of long-run parameters are super-consistent
even if the regressors are nonstationary (Pesaran et al., 1999). However, for
small samples or short time series dimensions, the MG estimator is likely
to be inefficient (Hsiao et al., 1999). For small T, the MG estimates of the
coefficients for the speeds of adjustment are subject to a lagged dependent
variable bias (Pesaran and Zhao, 1999).
Unlike the MG approach, which imposes no restriction on slope coeffi-
cients, the PMG approach imposes cross-sectional homogeneity restrictions
only on the long-run coefficients, but allows short-run coefficients, the speeds
of adjustment and the error variances to vary across countries. The restric-
tion of long-run homogeneity can be tested via a likelihood ratio test.7 Under
the null hypothesis of long-run homogeneity, the PMG estimators are consis-
tent and more efficient than the MG estimators. Since the PMG estimator
as well as the WG estimator are restricted versions of the set of individ-
ual group equations, the likelihood ratio test tends to reject the null at the
conventional significance levels. Moreover, Pesaran et al. (1999) show that
the PMG estimators are consistent and asymptotically normal irrespective
of whether the underlying regressors are I(1) or I(0).
The PMG approach requires that the long-run coefficients for CDMit ,
6
More specifically, the MG estimator
y
and its standard errors are calculated as e
θM G =
x −
xS
w N (θ
e − θ )2
i
− SN e N −1
σ(e
i=1 θ i
and se(e θ ) i−1
θ= θMG ) = √ i = √ , respectively.
N N N

7
The restriction of long-run homogeneity can also be tested via a Hausman test, which
is asymptotically distributed as a χ2 (p), where p is the number of parameters.

11
GDPit and GDP2it are common across countries, that is,

⎛ ⎞
p
X
0
αij = − ⎝1 − αj ⎠
j=1
q
X
0
β ij = βj
j=0
Xq
0
γ ij = γj
j=0
Xq
0
δ ij = δj
j=0

4 Empirical evidence

In this section, the WG approach, MG approach and PMG approach are

applied and compared to determine whether CDM project development leads
to a decline in CO2 emissions for the host countries.
The number of lags is constrained by the number of observations. As
shown by Pesaran et al. (1999), the PMG estimator seems quite robust to
outliers and the choice of ARDL order, especially when T is large. We adopt
an autoregressive distributed lag ARDL(1, 1, 1, 1) system for this analysis
with the corresponding error correction equation as follows.8
8
The parameters reported in Tables 1, 2 and 3 for speeds of adjustment, long-run
0 0 0
0 β i1 γ i1 δi1
coefficients and short-run coefficients correspond to model parameters αi1 , 0 , 0 , 0 ,
αi1 αi1 αi1
−β i1 , −γ i1 , −δ i1 of equation (3), respectively.

12
 Ã 0 0 0
!
0 β γ i1 δ i1
4CO2it = αi1 CO2i,t−1 + i1
0 CDMit + 0 GDPit +
2
0 GDPit
αi1 αi1 αi1
−β i1 4 CDMi,t−1 − γ i1 4 GDPi,t−1 − δ i1 4 GDP2i,t−1 + μi + vit

i = 1, 2, ..., 34 and t = 1, ..., 18 (3)

where

0
αi1 = − (1 − αi1 )
0
β i1 = β i0 + β i1
0
γ i1 = γ i0 + γ i1
0
δ i1 = δ i0 + δ i1

Table 1 examines whether CDM projects result in reduced CO2 emissions

in the host countries, with the dependent variable being the CO2 emissions
(by sectoral approach) per capita in log. It reports three alternative pooled
estimates of WG, PMG and MG with and without a time trend. We expect
the long-run effects of CDM projects, level of GDP and squared GDP on
CO2 emissions to be homogenous across countries, although the short-run
adjustments are more likely to differ across countries. This analysis centers
on the PMG estimates.
The coefficients corresponding to the speeds of adjustment in Table 1
are significantly different from zero for two specifications, suggesting that
Granger causality going from CDM projects to CO2 emissions exists in the
cointegrated system.
Moving from the WG to PMG estimates, we find the PMG estimates
suggest much faster adjustment in two specifications than their WG coun-

13
terparts. Imposing homogeneity on all slope coefficients except for the in-
tercept, the WG estimates in two specifications suggest no evidence for the
negative long-run effects of CDM projects on CO2 emissions. However, the
WG estimates show that an Environmental Kuznets Curve can be observed
in these countries. When heterogeneity is sought, the PMG estimates, which
impose homogeneity only on the long-run coefficients, provide strong evi-
dence in support of a negative effect of CDM projects on CO2 emissions.
This tends to underscore the importance of allowing for heterogeneity across
countries in this context. Moreover, the PMG estimates find evidence for
an Environmental Kuznets Curve in these countries in the sense that pollu-
tion goes up when the level of income increases; however, when the income
reaches a certain level, a decline in CO2 emissions can be expected.
Moving from the MG to PMG in Table 1 changes the results significantly
as well. In particular, imposing long-run homogeneity reduces the standard
errors and the speeds of adjustment. As it is clear, the MG estimator imposes
no restriction on all slope coefficients, and is potentially inefficient for small
sample size. The MG approach confirms the finding by the PMG approach
on a significant impact of CDM on CO2 emission reductions; but it finds
no evidence in support of a significant long-run effect of income on CO2
emissions. When the MG and PMG estimates are compared, the likelihood
ratio tests strongly reject the null of equality of all of long-run coefficients
at conventional levels; therefore it doesn’t appear that we are imposing too
strong a constraint on data.
Table 2 looks at the impact of CDM development on CO2 emissions
per capita from manufacturing industries, energy sector, and households,
tertiary and agriculture sectors, respectively. The PMG estimates suggest
CDM projects reduce CO2 emissions at 1% significance level from either the

14
manufacturing industries or energy sector while 10% level from households,
tertiary and agriculture. The significant impact of income on CO2 emissions
is also confirmed by the PMG estimates.
As a robustness test, Table 3 makes use of the CO2 emissons (by reference
approach) per capita over 1990-2007. The MG estimates suggest a positive
effect of CDM projects on CO2 emissions when a time trend is allowed while
a negative effect when a time trend is absent. The PMG estimates confirm
that the CDM projects are associated with CO2 emission reductions and the
Environmental Kuznets Curve can be observed.
In sum, after allowing for heterogeneity across countries, this analysis
on annual data clearly shows a significant effect of CDM projects on CO2
emission reductions. The findings in general suggest that the development of
CDM projects could cause a decline in CO2 emissions and has the potential
to help developing countries achieve their sustainable development objective.
On the impacts of income on CO2 emissions, the WG and PMG estimates
support an EKC hypothesis while the MG estimates do not support it. This
finding is in line with Halkos (2003) among others who suggest that the
EKC hypothesis is hard to be tested due to enormous heterogeneity across
countries.

5 Concluding remarks

Under the Kyoto Procotol, the CDM is designed to allow the Annex I coun-
tries to invest in GHGs emission reduction projects in non-Annex I coun-
tries, while providing the non-Annex I countries with access to the flows of
technology and capital that could contribute to their sustainable develop-
ment objectives. The CDM projects in a country should act as a substantial
stimulus to the development of low-carbon technologies, which, in turn, pro-

15
mote reduced CO2 emissions, and should also be conducive to increased en-
ergy efficiency and conservation, increased investment flows and technology
transfers, private and public capacity development as well as health, rural
development and poverty reduction. Substantial research has been carried
out to examine whether CDM projects contribute to sustainable develop-
ment, suggesting contradictory findings. Due to a lack of data, panel data
analysis or time series analysis on this issue at aggregated level has been
hitherto lacking.
To investigate the impacts of CDM projects on CO2 emissions, we con-
ducted a dymanic panel data study allowing for considerable heterogeneity
across countries for 34 CDM host countries over 1990-2007. It mainly fo-
cuses on the pooled mean group procedure which allows for heterogeneous
dynamic adjustments towards a common long-run equilibrium. This re-
search in general provides strong evidence in support of a significant impact
of CDM projects on CO2 emission reductions, indicating a decline in CO2
emissions can be expected in the CDM host countries in the long run.
FindingS show that the CDM can play an important role in reducing
CO2 emissions and achieving sustainable development in developing coun-
tries. It provides ample recommendation for improving CDM development
and serves to encourage developing countries to strengthen their national
capacity to effectively access the CDM for national sustainable development
objectives. Governments of developing countries should improve its institu-
tional quality and formulate favorable policies to stimulate productivity of
CDM projects, especially at their early stage of development. Governments
can strengthen their capacity through international exchanges of experience
or international networking to acquire beneficial information on other coun-
tries’ CDM programs.

16
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20
Table 1. Does CDM contribute to CO 2 emission reductions (sectoral approach)? 1990-2007
Dependent Variable: Without Time Trend With Time Trend
CO 2 it Within Pooled Mean Within Pooled Mean
Groups Mean Group Group Groups Mean Group Group
Speed of adjustment -0.216 -0.296 -0.517 -0.212 -0.490 -0.816
[0.000]*** [0.000]*** [0.000]*** [0.000]*** [0.000]*** [0.000]***

Long-run coefficients
CDM it
-0.038 -0.170 -0.279 -0.031 -0.115 -0.098
[0.374] [0.000]*** [0.000]*** [0.451] [0.000]*** [0.033]**
GDPit 1.038 1.665 0.063 1.084 2.171 0.007
[0.000]*** [0.000]*** [0.575] [0.000]*** [0.000]*** [0.901]
GDP 2
it -0.097 -0.203 0.039 -0.094 -0.138 -0.217
[0.079]* [0.000]*** [0.695] [0.096]* [0.002]*** [0.248]

Short-run coefficients
Δ CDM i , t −1 0.001 -0.779 0.416 0.023 0.029 -0.010
[0.947] [0.017]** [0.000]*** [0.946] [0.006]*** [0.305]
Δ GDP i ,t −1 0.301 2.177 -1.290 0.310 -2.361 0.061
[0.133] [0.247] [0.175] [0.108] [0.024]** [0.067]*
Δ GDP 2 i ,t −1 0.027 0.027 -0.002 0.001 2.983 -0.589
[0.639] [0.103] [0.835] [0.685] [0.194] [0.835]
Trend 0.000 -0.004 0.007
[0.731] [0.294] [0.000]***
Observations 578 578 578 578 578 578
Number of Countries 34 34 34 34 34 34
Log Likelihood 713.46 1039.64 1166.60 713.56 1107.81 1278.02

Note: The dependent variable is CO2 emissions (sectoral approach) per capita in log. Variables and data sources are described in the text. This table presents the within group estimates,
the Pesaran, Shin and Smith (1999)'s Pooled Mean Group estimates (PMG) and the Pesaran and Smith (1995)'s Mean Group estimates (MG), without and with a time trend, respectively.
The PMG approach uses the MG estimates of long-run coefficients as initial values, and the Newton-Raphson algoithm. For the case of within group estimates, the standard errors are
corrected for possible heteroscedasticity in the cross-sectional error variances. All equations included a constant country-speific term. Log Likelihood is to examine the null hypothesis
of equality of all of the long-run coefficients. P-values are reported in the brackets. *, **, *** significant at 10%, 5%, 1%, respectively.
Table 2. Does CDM contribute to CO 2 emission reductions (by sector)? 1990-2007
Dependent Variable: Manufacturing Industries Energy Sector Households, Tertiary and Agriculture
CO 2 it Within Pooled Mean Within Pooled Mean Within Pooled Mean
Groups Mean Group Group Groups Mean Group Group Groups Mean Group Group
Speed of adjustment -0.294 -0.649 -0.870 -0.261 -0.627 -0.835 -0.220 -0.584 -0.885
[0.000]*** [0.000]*** [0.000]*** [0.000]*** [0.000]*** [0.000]*** [0.000]*** [0.000]*** [0.000]***

Long-run coefficients
CDM it
-0.001 -0.065 -0.128 0.103 -0.092 0.420 -0.030 -0.033 -0.291
[0.989] [0.000]*** [0.000]*** [0.490] [0.000]*** [0.000]*** [0.718] [0.069]* [0.000]***
GDPit 1.223 1.626 0.016 0.762 0.892 -0.005 0.946 0.577 0.036
[0.007]*** [0.000]*** [0.821] [0.034]** [0.000]*** [0.941] [0.108] [0.000]*** [0.727]
2
GDP it -0.346 -0.387 -0.118 0.108 0.206 0.014 -0.311 0.130 0.074
[0.018]** [0.000]*** [0.469] [0.624] [0.001]*** [0.917] [0.001]*** [0.009]*** [0.638]

Short-run coefficients
Δ CDM i , t −1 -0.027 3.703 0.056 0.354 13.678 0.004 0.012 6.913 -0.168
[0.557] [0.667] [0.754] [0.841] [0.521] [0.931] [0.485] [0.302] [0.431]
Δ GDP i ,t −1 0.528 -14.937 -0.029 -0.008 -2.936 -0.140 0.433 0.022 -0.113
[0.096]* [0.413] [0.550] [0.849] [0.092]* [0.000]*** [0.440] [0.612] [0.462]
Δ GDP 2 i ,t −1 -0.064 0.008 0.095 -0.039 0.032 -0.005 -0.067 -1.924 0.040
[0.269] [0.170] [0.002]*** [0.435] [0.313] [0.931] [0.015]** [0.410] [0.019]**
Trend 0.000 -0.007 0.009 0.000 0.009 0.026 0.000 -0.005 0.001
[0.973] [0.334] [0.110] [0.972] [0.246] [0.000]*** [0.964] [0.463] [0.739]
Observations 578 578 578 578 578 578 578 578 578
Number of Countries 34 34 34 34 34 34 34 34 34
Log Likelihood 189.25 670.16 797.62 -26.58 637.77 766.92 367.89 804.59 952.14

Note: The dependent variable is CO2 emissions per capita in log from manufacturing industries, energy sector, and households, tertiary, and agriculture, respectively. Variables and data sources are
described in the text. See Table 1 for more notes.
Table 3. Does CDM contribute to CO 2 emission reductions (reference approach)? 1990-2007
Dependent Variable: Without Time Trend With Time Trend
CO 2 it Within Pooled Mean Within Pooled Mean
Groups Mean Group Group Groups Mean Group Group
Speed of adjustment -0.233 -0.315 -0.564 -0.232 -0.548 -0.874
[0.000]*** [0.000]*** [0.000]*** [0.000]*** [0.000]*** [0.000]***

Long-run coefficients
CDM it
-0.035 -0.136 -0.049 -0.034 -0.108 0.179
[0.394] [0.000]*** [0.290] [0.420] [0.000]*** [0.000]***
GDPit 1.045 1.609 0.114 1.049 2.104 0.665
[0.000]*** [0.000]*** [0.405] [0.001]*** [0.000]*** [0.003]***
GDP 2
it -0.083 -0.172 0.069 -0.083 -0.094 -0.234
[0.102] [0.000]*** [0.577] [0.100] [0.016]** [0.433]

Short-run coefficients
Δ CDM i , t −1
-0.005 -0.500 -0.431 0.047 3.876 1.292
[0.703] [0.379] [0.044]** [0.703] [0.118] [0.000]***
Δ GDP i ,t −1 0.264 0.017 0.659 0.264 0.032 -0.010
[0.203] [0.079]* [0.040]** [0.179] [0.005]*** [0.320]
Δ GDP 2 i ,t −1 0.048 2.118 -0.017 -0.005 -2.579 -2.036
[0.426] [0.196] [0.119] [0.426] [0.009]*** [0.000]***
Trend 0.000 -0.004 0.008
[0.976] [0.442] [0.000]***
Observations 578 578 578 578 578 578
Number of Countries 34 34 34 34 34 34
Log Likelihood 679.58 1011.05 1136.66 679.58 1089.20 1247.93

Note: The dependent variable is CO2 emissions per capita from fuel combustion (by reference approach) in log over 1990-2007. Variables and data sources are described in the text. See Table 1
for more notes.
Appendix Table 1: The List of Countries in the Full Sample

No. Country Name Country Code First CDM Year

1 Argentina ARG 2004
2 Armenia ARM 2005
3 Bangladesh BGD 2005
4 Bolivia BOL 2004
5 Brazil BRA 2003
6 Chile CHL 2003
7 China CHN 2004
8 Cote d'Ivoire CIV 2005
9 Colombia COL 2005
10 Costa Rica CRI 2004
11 Ecuador ECU 2004
12 Guatemala GTM 2003
13 Honduras HND 2004
14 Indonesia IDN 2004
15 India IND 2003
16 Iran IRN 2005
17 Israel ISR 2005
18 Jamaica JAM 2005
19 Cambodia KHM 2005
20 South Korea KOR 2003
21 Sri Lanka LKA 2005
22 Morocco MAR 2004
23 Mexico MEX 2004
24 Malaysia MYS 2004
25 Nigeria NGA 2005
26 Nicaragua NIC 2005
27 Nepal NPL 2005
28 Panama PAN 2005
29 Peru PER 2005
30 Philippines PHL 2005
31 El Salvador SLV 2005
32 Thailand THA 2005
33 Uruguay URY 2005
34 South Africa ZAF 2004

Note: This table lists the country codes and country names for 34 CDM host countries considered in this analysis.
The First CDM Year is the year when a country had its first CDM project in the pipeline. Data are from the UNEP
Risoe Centre CDM/JI Pipeline Analysis and Database (2008).
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• Dessai, S., Hulme, M (2003). Does
• Anderson, D. and Winne, S. (2003) climate policy need probabilities?,
Innovation and Threshold Effects in Tyndall Centre Working Paper 34
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 implications for adaptation to climate
• Pridmore, A., Bristow, A.L., May, A. change, Tyndall Centre Working Paper 26
D. and Tight, M.R. (2003). Climate
Change, Impacts, Future Scenarios • Xueguang Wu, Mutale, J., Jenkins,
and the Role of Transport, Tyndall N. and Strbac, G. (2003). An
Centre Working Paper 33 investigation of Network Splitting for
Fault Level Reduction, Tyndall Centre
Working Paper 25
• Xueguang Wu, Jenkins, N. and
Strbac, G. (2003). Integrating • Xueguang Wu, Jenkins, N. and
Renewables and CHP into the UK Strbac, G. (2002). Impact of
Electricity System: Investigation of Integrating Renewables and CHP into
the impact of network faults on the the UK Transmission Network, Tyndall
stability of large offshore wind farms, Centre Working Paper 24
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• Paavola, J. and Adger, W.N. (2002).
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O’Riordan, T. (2003). A scoping study of change, Tyndall Centre Working Paper 23
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futures. Part 1 of the pilot-phase • Watson, W.J., Hertin, J., Randall, T.,
interactive integrated assessment Gough, C. (2002). Renewable Energy
process (Aurion Project), Tyndall and Combined Heat and Power
Centre Working Paper 31 Resources in the UK, Tyndall Centre
Working Paper 22
• Hulme, M. (2003). Abrupt climate
change: can society cope?, Tyndall • Watson, W. J. (2002). Renewables
Centre Working Paper 30 and CHP Deployment in the UK to
2020, Tyndall Centre Working Paper 21
• Brown, K. and Corbera, E. (2003). A
Multi-Criteria Assessment Framework • Turnpenny, J. (2002). Reviewing
for Carbon-Mitigation Projects: organisational use of scenarios: Case
Putting “development” in the centre study - evaluating UK energy policy
of decision-making, Tyndall Centre options, Tyndall Centre Working Paper 20
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• Pridmore, A. and Bristow, A.,
• Dessai, S., Adger, W.N., Hulme, M., (2002). The role of hydrogen in
Köhler, J.H., Turnpenny, J. and Warren, R. powering road transport, Tyndall
(2003). Defining and experiencing Centre Working Paper 19
dangerous climate change, Tyndall
Centre Working Paper 28 • Watson, J. (2002). The
development of large technical
• Tompkins, E.L. and Adger, W.N. systems: implications for hydrogen,
(2003). Building resilience to climate Tyndall Centre Working Paper 18
change through adaptive
management of natural resources, • Dutton, G., (2002). Hydrogen
Tyndall Centre Working Paper 27 Energy Technology, Tyndall Centre
Working Paper 17
• Brooks, N. and Adger W.N. (2003).
Country level risk measures of • Adger, W.N., Huq, S., Brown, K.,
climate-related natural disasters and Conway, D. and Hulme, M. (2002).
Adaptation to climate change: Setting
Tyndall Working Papers 2000 - 2008
the Agenda for Development Policy • Adger, W. N. (2001). Social Capital
and Research, Tyndall Centre Working and Climate Change, Tyndall Centre
Paper 16 Working Paper 8
• Barnett, J. (2001). Security and
• Köhler, J.H., (2002). Long run Climate Change, Tyndall Centre Working
technical change in an energy- Paper 7
environment-economy (E3) model for
an IA system: A model of Kondratiev • Goodess, C.M., Hulme, M. and
waves, Tyndall Centre Working Paper 15 Osborn, T. (2001). The identification
and evaluation of suitable scenario
• Shackley, S. and Gough, C., (2002). development methods for the
The Use of Integrated Assessment: An estimation of future probabilities of
Institutional Analysis Perspective, extreme weather events, Tyndall
Tyndall Centre Working Paper 14 Centre Working Paper 6

• Dewick, P., Green K., Miozzo, M., • Barnett, J. (2001). The issue of
(2002). Technological Change, 'Adverse Effects and the Impacts of
Industry Structure and the Response Measures' in the UNFCCC,
Environment, Tyndall Centre Working Tyndall Centre Working Paper 5
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• Barker, T. and Ekins, P. (2001).
• Dessai, S., (2001). The climate How High are the Costs of Kyoto for
regime from The Hague to Marrakech: the US Economy?, Tyndall Centre
Saving or sinking the Kyoto Protocol?, Working Paper 4
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• Berkhout, F, Hertin, J. and Jordan,
• Barker, T. (2001). Representing A. J. (2001). Socio-economic futures in
the Integrated Assessment of Climate climate change impact assessment:
Change, Adaptation and Mitigation, using scenarios as 'learning
Tyndall Centre Working Paper 11 machines', Tyndall Centre Working Paper
3
• Gough, C., Taylor, I. and Shackley,
S. (2001). Burying Carbon under the • Hulme, M. (2001). Integrated
Sea: An Initial Exploration of Public Assessment Models, Tyndall Centre
Opinions, Tyndall Centre Working Paper Working Paper 2
10
• Mitchell, T. and Hulme, M. (2000). A
• Barnett, J. and Adger, W. N. (2001). Country-by-Country Analysis of Past
Climate Dangers and Atoll Countries, and Future Warming Rates, Tyndall
Tyndall Centre Working Paper 9 Centre Working Paper 1

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Tyndall Working Papers 2000 - 2008