these services at that time.

In his review of the CDM market, Sovacool (2010) considers that the design of this mechanism incurs substantial TCs due to the design of the project, the review and audit, the evaluation.

# **5.2. Estimated scale of transaction costs under CDM and JI**

Krey (2005) conducted a study to quantify TCs in 65 unilateral Indian CDM projects. Using surveys, the study estimates that total TCs range between US$0.07/tCO2 to US$0.47/tCO2 (Krey, 2005, p. 2385). In some projects TCs account for 2.2% to 13% of the CER price paid (Krey, 2004, p. 91). The costs associated with the PDD along with the costs related to find a buyer, to validate the project and the cost adaptation fee, represent the main share of TCs for projects with emission reduction lower than 1MtCO2 over the crediting period. Boyle et al. (2009) also finds that the development of PDD is an important cost driver along the level of complexity of the baseline determination and demonstration of additionality in CDM projects.

The already mentioned study published by the German Federal Ministry of the Environment et al. (2007) notes that for large scale CDM and JI projects, TCs for project development amount to between US$50,000 and US$100,000 (German Federal Ministry of the Environment et al., 2007, p. 82). For smaller projects, TCs are below US$50,000 (German Federal Ministry of the Environment et al., 2007, p. 82). MRV costs represent the major sources of TCs, and the more complex the baseline is (and resulting the required monitoring) the higher the TCs are. Interestingly, the study notes that in the first round of JI, TCs were much higher than later on in the process, suggesting the ‘learning effect’ also mentioned by Michaelowa and Jotzo (2005).

In the case of small-scale CDM wind-energy projects studied by Mundaca and Rodhe (2005, p. 406), based on the information obtained from wind energy developers in India and data obtained from consultancies already providing these services, ex-ante implementation TCs are estimated to be US$150,000 per wind farm regardless its size (Mundaca and Rodhe, 2005, p. 406). This includes costs such as negotiation, approval, baseline, and validation. When it comes to the ex-post TCs, these are estimated to be US$25,000 per crediting period, covering costs such as monitoring, verification and certification (Mundaca and Rodhe, 2005, p. 406). Depending on the size and performance of the projects, the estimates of TCs per CER vary considerably: between US$2 (for a project with an installed capacity of 4.8 MW and capacity factor of 17%) and US$34 (for a project with an installed capacity of 0.25 MW and capacity factor of 20%) (Mundaca and Rodhe, 2005, p. 413).

Michaelowa and Jotzo (2005, p. 514) give estimates of TCs for CDM projects funded by the Prototype Carbon Fund (operated by the World Bank). Typically, pre-implementation TCs in the life cycle of a CDM project amount to €390,000. However, given uncertainties (e.g. in relation to the entry into force of the Kyoto Protocol) and lack of experience (e.g. consultancies offering CDM pre-implementation services) at the time the study was conducted, the authors estimated that pre-implementation TCs could range from €242,000 to €713,000 per project. In addition, the analysis done by Michaelowa and Jotzo

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