Ex-Post CDM BaseLines, Self-Leakage and Counterproductive CDM

In thsi paper, we examine the consequences of CDM baselines that are influenced by the endogenous choice of output levels on the part of firms participating in CDM projects. When a CDM project reduces per output emissions level, so-called ex-post baseline methodology may well cause output to increase. Such output enhancing effect constitutes a form of self-leakage, We show that such self-leakage is likely to emerge when output demand is sufficiently elastic. Furthermore the self-leakage may lead to total emissions increase, which is the case of perverse counterprodutive CDM. We show that such counterproductive CDM is likely to occur again when output demand is sufficiently elastic.