The effect of Peru's CDM investments on households’ welfare: An econometric approach

The Clean Development Mechanism (CDM) under the Kyoto Protocol has two main objectives: Reducing emissions of greenhouse gases (GHGs) and contributing to sustainable development (SD) in developing countries. The empirical evidence indicates that the first goal has been fulfilled; however, the literature mostly provides ex-ante evidence regarding the second goal. This paper contributes to the literature by assessing the ex-post quantitative effect that CDM projects have had on SD (employment and monetary welfare) in Peru, a country ranked among the most important CDM investment host countries worldwide. The econometric model estimates the direct and indirect effects of the CDM projects’ investments on Peruvian households’ monetary welfare for 2011–2015. Our results suggest that CDM investments had a slight effect on household consumption expenditure and had no effect neither on employment nor in poverty alleviation. Our findings suggest the need to strengthen CDM's institutional framework by identifying key development definitions and indicators.