Laissez Faire and the Clean Development Mechanism: Determinants of Project Implementation in Indian States, 2003-2011∗

India is the world’s second-largest host of projects implemented under the Kyoto Protocol’s Clean Development Mechanism (CDM). There is, however, considerable variation in the distribution of CDM projects implemented across different Indian states. While a large body of literature examines cross-national variation in the implementation of CDM projects, few studies have analyzed the determinants of sub-national variation in different national contexts. Since India has adopted a laissez-faire approach to CDM project implementation, we theorize that profitable climate mitigation opportunities and political stability are two factors that promote CDM project implementation. A quantitative analysis provides empirical support for a set of hypotheses regarding the effects of these variables on project implementation. First, states with a lot of public electricity generating capacity and industrial capital implement more CDM projects than other states. Additionally, project developers rarely propose CDM projects during election years due to high levels of political uncertainty. Since India’s liberal approach prevents the central government from using the CDM to promote sustainable development in less developed states, both India and other host countries should develop coordinated national policies to maximize their gains from CDM projects.