Financing the Clean Development Mechanism through Debt-for-Efficiency Swaps? Case Study Evidence from a Uruguayan Wind Farm Project

• Published in: European journal of development research Vol. 26; no. 1; pp. 142 - 159
• Main Authors: Cassimon, Danny, Prowse, Martin, Essers, Dennis
• Format: Journal Article
• Language: English
• Published: London Palgrave Macmillan UK 01.01.2014; Palgrave Macmillan
• Subjects: Benefits; Budget, Government; Budgets; Climate change; Costs; Credit; Debt; Debt financing; Debt policy; Debt repayment; Debt restructuring; Developing countries; Development and Social Change; Development Economics; Development Policy; Development Studies; Economic Development; Efficiency; Emissions; Emissions control; Emissions trading; Energy industry; Energy market; Environmental effects; Environmental protection; Equity; Farms; Finance; Global warming; Government; Government Policy; International finance; Investments; LDCs; Original Article; Public Finance; Social Sciences; Spain; Studies; Sustainable development; Uruguay; Uruguayans; Wind energy; Wind farms; Wind power; Uruguay; Spain; clean development mechanism; climate finance; Uruguay; debt swaps; Spain
• ISSN: 0957-8811; 1743-9728
• DOI: 10.1057/ejdr.2013.34

As one of Kyoto’s three flexibility mechanisms, the Clean Development Mechanism (CDM) allows the issuance of Certified Emission Reduction credits from offset projects in non-Annex I countries. As little attention has been paid to how CDM projects are financed, this article assesses whether offset schemes with public bodies should utilise debt swaps as a form of funding. Specifically, we examine whether a debt-for-efficiency swap between Uruguay and Spain within a wind power project increased project finance and generated greater development co-benefits. We assess the transaction using a simple evaluative framework: whether it delivered additional resources to the debtor country and/or government budget; whether it delivered more resources for climate change mitigation; whether it had a sizeable effect on overall debt burdens (creating ‘indirect’ benefits); and whether it aligned with government policy and systems (elements of the new aid approach). We find evidence that cautions against using the Spanish–Uruguayan case as a model for future debt-for-efficiency swaps.