Markets for environmental services are being advocated as solutions to local and global environmental problems. The most ambitious of environmental markets is the evolving and overlapping network of carbon markets that seek to reduce global emissions of greenhouse gases linked to climate change. This research examines why and how developing-country firms decide to participate in carbon markets. The research focuses on firm decisions to generate and sell carbon credits under the Clean Development Mechanism (CDM) of the 1997 Kyoto Protocol, in the sugar and cement sectors in Brazil and India. By comparing firms that choose to initiate CDM projects with peer firms that do not, we assess drivers of firm CDM participation, trace the processes by which firms enter new carbon markets, map firm perceptions of CDM project risks and benefits, and identify salient characteristics of the emerging carbon markets in Brazil and India. The cross-national, cross-sector comparative design enables a comparison of the effects of both level of state intervention (Brazil-high; India-low) and degree of sector concentration (cement-high; sugar-low) on firm carbon market participation. Data will be collected through context interviews with key carbon market informants and through firm interviews with approximately 150 CDM and non-CDM firms.
The research comes at a critical juncture in the evolution of US and international climate policy. Developing-country economies will play increasingly important roles in shaping international environmental treaties and determining global environmental quality. Understanding the decision and risk management processes by which developing-country firms undertake CDM projects can contribute to improving developing-country private sector support for continued international action on climate change. With negotiations for a post-Kyoto climate agreement expected to intensify in 2009 and 2010, the research will be of direct interest to national and international climate policy negotiators.
To reduce the risk of dangerous climate change, global levels of greenhouse gas emissions must fall dramatically in the next fifty years, entailing major changes in energy technology investment. This task will require significant reductions in emissions not only in highly industrialized economies but also in large emerging economies such as China, Brazil, India, South Africa, and Indonesia. In fact, over ninety-five percent of the growth in global emissions to 2030 will occur in these industrializing countries. To date, the primary mechanism of clean energy governance in the Global South has been the Clean Development Mechanism (CDM) negotiated under the United Nations Framework Convention on Climate Change. The CDM creates a carbon market through which developing-country firms that invest in greenhouse gas reducing technology can sell the resulting emissions reductions to buyers in industrialized countries. This research investigated the effectiveness of the CDM, focusing on the sugar and cement industries in Brazil and India, in order to identify opportunities and barriers to a low carbon future in the Global South. In particular, the research answered two questions: 1) What are the characteristics of firms that invested in carbon emissions reductions under the CDM? and 2) What institutional factors influenced the effectiveness of the CDM? Based on on-site and telephone interviews with a random sample of over 200 firms in Brazil and India, conducted between 2009 and 2011, we found that CDM participation was highest in the Indian cement industry (43%, 50 out of 115 units), followed by Brazil cement (17%, 11 out of 65 units), Brazil sugar (14%, 60 out of 417 mills), and India sugar (14%, 78 out of 558 mills). We analyzed six hypotheses explaining firm-level investments in low carbon technologies and carbon trading and found that certification through the International Organization for Standardization (ISO), firm size, and private ownership were key predictors of CDM participation. Moreover, firm participation in the CDM was facilitated by specialized carbon market consultancies that reached out through pre-existing market networks to solicit clients. The activities of these carbon market consultant communities determined the effectiveness of CDM across industry and national context. Both Brazil and India witnessed rapid expansion of the CDM and remain global leaders in the number of projects, expected reductions, and depth of institutional capacity. Despite these similarities, carbon market development varied across the two countries, driven by two distinct carbon market intermediary communities. In Brazil intermediaries were local entrepreneurs, specializing in the Brazilian carbon market, while in India CDM projects were promoted by the carbon market divisions of major global consulting companies. These differences arose from the distinct characteristics of each nation’s energy portfolio and domestic regulatory environment. Findings from this research have directly informed the national and international climate policy process. Research findings were presented at the UN climate change negotiations in Copenhagen, Denmark in 2009 and in Cancun, Mexico in 2010. In addition, data were presented at two capstone conferences—the "International Workshop on Carbon Markets in Emerging Economies" held on November 22, 2010 at the University of Sao Paulo, Brazil, and the "International Workshop on the Private Sector and Climate Change: Opportunities and Challenges in Emerging Economies" held on January 17-18, 2011 at the Observer Research Foundation, in New Delhi, India—in order to inform climate policy formulation in Brazil and India. The research project trained six graduate students, involved numerous collaborators from Brazil and India, and created a network of scholars and research collaborators with expertise in corporate responses to climate change in the Global South. The research collaborators and graduate students trained on this project have moved into various positions in academia, leading international organizations, and US government agencies.
