CDM Domino

Clean Development Mechanism (CDM) is a newly adopted scheme to give incentives to emission reduction projects in developing countries under Kyoto Protocol. We consider its implication under the demads for the products produced by firms engaging in CDM project are interrelated. In particular, we try to give examples where an adoption of a CDM project by one firm enhances the incentive of other firms to follow. What we found is that the condition for this to take place is rather stringent, indicating that the external push may be desirable for one to promote CDM activities in these situations.