Abstract
The developing countries i.e., the non-Annex-I countries (parties to the Kyoto Protocol but not responsible to any reduction target yet) in the Kyoto Protocol whose economies are in transition are also allowed to reduce GHG emissions. Among these, the countries that have accepted the Kyoto Protocol may be benefited from CDM projects to promote sustainable development. The developed countries i.e., the Annex-I countries (that have signed the Kyoto Protocol & are responsible to have specific GHG emission reduction target) or the investing countries, in return, have privilege to purchase CER credits (in units equivalent to one tonne of CO2 gas emission reduction) to meet the emission target as specified in the Kyoto Protocol. The key step in understanding about CDM is to grasp the concept of “baseline” and “additionality”. The “Baseline” is the emissions level that would have existed if a CDM project had not happened. The feature of an approved CDM project is that the planned reductions would not occur without the additional incentive provided by emission reduction credits; this concept is known as “Additionality”. According to environmental additionality concept, baseline emission minus project emission is equal to emissions reduction. “Investment Additionality,” ultimately rejected during negotiation of the “Marrakech Accords” and “Financial Additionality,” are the two important concepts. The concept of trading of CER matches to the idea ofPigovian tax (equal to the negative externality and which is considered one of the “traditional” means of bringing a modicum of market forces) in Economics, making pollution more costly to the polluter, as the polluters have negative cost since they save money by polluting; hence, there are supposed negative externalities associated with the market activity. Economic theory predicts that in an economy where the cost of reaching mutual agreement between parties is high and where pollution is diffuse, Pigovian tax will be an efficient way to promote the public interest and will lead to an improvement of the quality of life measured by the Genuine Progress Indicator and other human economic indicators, as well as higher gross domestic product growth. We can seek a level of pollution such that the marginal savings (MS) to one polluting unit from pollution (−MC) is equal to marginal damage (MD) from pollution over the entire population, since pollution is a public bad i.e., MS (x*) = ∑MDi (x*) where ∑Di (x) is the total damage. Though the responsibility of reduction in emission does not lie on the non-Annex-I countries, still effort of maintaining global emission balance can be expected equally from developed and developing countries. The responsibilities of Kyoto Protocol are (a) to reduce global GHG emissions, (b) to bring about sustainable development in the developing countries lie on above two groups since its effect on February 16, 2005. Different polluters have different costs of pollution control. The least costly way of controlling pollution from various sources that reflects different costs of pollution control making the set of environmental regulations to achieve the emission target at the lowest cost makes the regulation cost-effective. Though efficiency is not attainable for many regulations, cost-effectiveness is attainable