Do Clean Development Mechanism Projects Generate Local Employment? Testing for Sectoral Effects across Brazilian Municipalities

Abstract

Clean Development Mechanism (CDM) projects have a two-fold objective: reducing greenhouse gas emissions and contributing to sustainable development. But while the contribution to mitigation has been analyzed extensively in the literature, the impact on development has seldomly been quantified empirically. This paper addresses this gap by investigating the impacts of CDM projects on local employment. We use a dynamic panel regression model across Brazilian municipalities for the period 2004–2014 to estimate cross-sectoral employment effects of two project types: hydro projects and methane avoidance projects. We find that CDM projects have mixed effects on sectoral employment. Municipalities with hydro projects show a positive impact on commerce and a negative on agricultural employment. In a similar way, these effects have also been identified in municipalities with methane avoidance projects, as well as positive effects in the service and the construction sector. Regardless of project type, the sectoral employment effects are found to be small and transitory, i.e. these took place immediately or within the first, second or third year after the registration of the project, corresponding to the construction phase and early years of operation. Revenues from Certified Emission Reductions (CER) seem to have no or a very small positive impact on sectoral employment, and no significant impact is found for the CER price fall in 2012.