The Influence of Risk on CDM Cost Effectiveness from the Perspective of EU-ETS Compliance Investors

While the trading prices of issued Certified Emission Reductions (CERs) within the

European Union Emissions Trading Scheme (EU-ETS) are transparent, there is limited

knowledge about the actual origination cost of Clean Development Mechanism (CDM)

projects. Minimum CER prices required for financial viability of a CDM project idea

define a measure for CDM cost effectiveness and indicate the floor price for project

participation. As CDM projects are located in developing countries, they face substantial

implementation and performance risks that need to be considered for CDM cost

effectiveness calculation. As existing studies primarily focus on qualitative risk

assessment, there is a lack of a monetary evaluation of risk impact on CDM origination

cost and CER floor price.