Effects of the CDM on Poverty Eradication and Global Climate Protection

In an impure public good model we analyze the effects of CDM transfers on poverty as well as on the global climate protection level. We construct an analytical model of a developing and an industrialized region, both of which independently seek to maximize their utility – a function of private consumption, domestic air quality, and global climate protection. They do so by distributing their finite expenditures across (1) the aggregate consumption good, (2) end-of-pipe pollution control technologies, and (3) greenhouse gas abatement. Applying this model to empirical data on China and the European Union, we develop two sets of simulations to assess the impact of differing rates of the CDM transfer. The simulations differ by their assumptions regarding China‟s domestic air quality policy: the first assumes a technology-standards policy which fixes a level of end-of-pipe SO2 control, whereas the second assumes a flexible technology-neutral policy which simply fixes the level total SO2 emissions