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.