Transaction cost reduction for small-scale Clean Development Mechanism (CDM) Projects in Thailand

Abstract

An environmentally friendly, reliable source of energy, and access to it, can be seen as a critical element in supporting sustainable development at the local community level. Additionally, for developing countries in particular, e.g. renewable energy projects have the potential to reduce greenhouse gas emissions and provide finance through the clean development mechanism (CDM). The main objective of this thesis is to explore how the high transaction costs of small-scale CDM projects can be reduced. Bundling several small-scale CDM projects together and developing them as one larger CDM project bundle is one option. The key question remains, however, how such a transaction is reduced through bundling in reality. To investigate this and other policy options, this research study focuses on small-scale wastewater and biogas projects at Thai pig farms. One main conclusion of this research study is that the UNFCCC simplified modalities and procedures do not reduce the CDM project cycle transaction costs sufficiently for the single small-scale projects of 10,000 pigs and 5,000 pigs, which generate in average 4231 tCO[subscript2e] and 2116 tCO[subscript2e] of emissions reductions annually. Bundling per se can reduce these transaction costs further, however, the smaller project bundles stay less viable than the projects without CDM and the transaction costs per CER remain in a high range for all bundles. The second main conclusion is therefore that bundling per se does not sufficiently reduce the CDM project cycle transaction costs. With the additional policy options the viability of the bundles is increased to a sufficient level even with the low price of CER. Therefore, the third main conclusion is that the transaction costs can be reduced to a viable level at least for some project bundles with these transaction costs reductions. Yet, when the current government biogas technology subsidies, technology risk and cost of bundling are considered, it becomes clear that only the project of 10,000 pigs in bundles can possible be viable enough in reality. Therefore, finally, it can be concluded that the projects of 10,000 pigs and 5,000 pigs would never be realized as small-scale CDM projects unless the transaction costs were reduced. And yet, some of these projects are not so unviable that they could not be developed under small-scale CDM with some additional effort. Therefore, the last main conclusion is that transaction cost reduction is central to the realization of these small-scale CDM projects. Moreover, these small-scale CDM projects could bring about local benefits, or in fact solve local problems, while addressing global concerns, if effort is put in developing capacities that enhance the realization of the transaction cost reductions.