Kyoto’s project-based mechanisms CDM and JI – How are they taken into consideration in the GHG management strategy of the Swedish Trading Sector?

Abstract

Backed by the Kyoto Protocol, corporate greenhouse gas management is of growing importance for the mitigation of global warming. The commitments of the EU and the Swedish environmental policy put pressure on companies under the emission trading scheme to reduce their carbon dioxide emissions or find other ways for compliance. Contrary to earlier regulations, market-based instruments such as emission trading, Clean Development Mechanism (CDM) and Joint Implementation (JI) offer a flexible approach and encourage global thinking. This study focuses on the corporate greenhouse gas management strategies adopted in Sweden and investigates in particular if the use of the flexible mechanisms CDM and JI are considered to be a viable option for compliance purposes. The empirical research explores attitudes towards CDM/JI and gives an overview on current and potential investments. Our results show that internal emission reduction measures are the most common strategy to handle a shortfall in allowances, followed by the purchase of allowances on the carbon market. Large companies display a wider variety of strategies and are more open to alternatives such as CDM/JI. They are also more positive to CDM/JI while smaller companies have a more critical attitude. Our study of additional benefits for corporate investors, besides purely financial ones, shows that CDM/JI are used to spread risks and are seen to have a potential in the creation of strategic alliances and goodwill. However, so far, the Swedish trading sector’s involvement in these project-based mechanisms is very limited.