Clean Development Mechanism Projects in Latin America : beyond reducing CO2 (e) emissions. A case study in Chile

Abstract

The Clean Development Mechanism (CDM) was created to compensate underdeveloped countries for their contribution to mitigate climate change. Under these rules, those projects showing the lower cost, in terms of investment, for each tonne of CO2 (e) saved, will be the ones selected. However, even if this selection process seems quite rational, it can result in a suboptimal allocation of resources, when other impacts of these projects, also having to do with social welfare, are considered. This point is illustrated in this paper by comparing the financial cost of CER credits of two current CDM projects in Chile, the Santa Marta Landfill Gas Capture Project and the Corneche‐Los Guindos Methane Capture from Swine Manure Project, with that of a third, “virtual” project, the upgrading of the Renca Generation Plant in Santiago de Chile to a gas fired combined cycle (CCGT) Plant. Even if this third project is much less efficient in financial terms, it shows a very important ancillary benefit: its impact on human health. When this impact is introduced, the result, as expected, is a drastic change in the relative social profitability of the three projects.