Rent sharing in the Clean Development MechanismThe Case of the Tahumanu Hydroelectric Project in Bolivia

The Clean Development Mechanism (CDM) of the Kyoto Protocol, aims to minimise the cost of Annex B countries' commitments to reduce emissions, but also to limit the risk that the Developing Countries unquestionable right to develop will offset the Annex B countries efforts: the CDM should promote faster progress along a less polluting development path.Beyond political principles, the pertinent players have to be incorporated into the decision making process of future CDM. The issues for host country include attracting the investment capacity, by taking advantage of the additional incentive created by CDM certificates. For private investors, the objective is to maximise the sum of commercial revenues plus CDM carbon income.This paper examines potential CDM project opportunities in the power sector. The Tahumanu project consists of building a hydroelectric power plant instead of subsidized diesel plants in the Bolivian Pando Province. Simulations show that it offers a realistic illustration of possible set up and arrangements of CDM projects with the host country.