Economic and financial feasibility of developing an electronic trading mechanism for carbon emission credits generated by projects under the Kyoto Protocol: a case study of Sri Lanka

Abstract

This paper explores the existing trading mechanisms for certified emission reductions (CERs), a tradable commodity generated under clean development mechanisms (CDMs) of the Kyoto Protocol and proposes an electronic trading system to improve the trading efficiency and the liquidity of the commodity in Sri Lanka. Currently, 35 CDM projects are in pipeline in Sri Lanka and most of these projects are power generation plants based on renewable energy sources, as hydro, biomass and organic waste. These projects are financially viable, but involve large initial investments, long gestation cycle and long payback periods. These become attractive propositions in the presence of additional financial benefits generated by selling CERs. The proposed ETS is a new technology concept and will entail problems associated in technology development, transfer and assimilation in the systems. The paper examines some of these associated issues.