Exploring the relationship between FDI flows and CDM potential

Abstract

Since it was conceived in 1997, the Clean Development Mechanism (CDM) has become much more concrete, and expectations and reality are beginning to confront one another in the emerging carbon marketplace. This article provides an overview of this innovative policy instrument, which is an element of the United Nations Kyoto Protocol, and questions the simplistic assumption that CDM flows will essentially mimic foreign direct investment (FDI) flows. By shedding light on the nature of the CDM and exploring the relationship between the CDM and FDI, this article clarifies CDM-related determinants of FDI flows, suggests CDM opportunities for transnational corporations (TNCs) and outlines further research needed to determine how developing country entities can attract CDM investment or enhance their ability to export CDM certificates. Political overview of the UNFCCC and the Kyoto Protocol The United Nations Framework Convention on Climate Change (UNFCCC) entered into