Received: 3 March 2022 Revised: 2 September 2022 Accepted: 11 September 2022

DOI: 10.1002/mde.3722

RESEARCH ARTICLE

Financial and environmental efficiency of CDM projects:

Analysis and classification for investment decisions

Antônio Carlos Pacagnella Júnior | Henrique Luiz da Silva |

Wagner Wilson Bortoletto | Paulo Sergio de Arruda Ignacio

School of Applied Sciences (FCA), State

University of Campinas (UNICAMP), São
Paulo, Brazil
Correspondence
Antônio Carlos Pacagnella Júnior, School of
Applied Sciences (FCA), State University of
Campinas (UNICAMP), R. Pedro Zaccaria,
1300, Limeira, São Paulo, 13484-350, Brazil.
Email: acpjr@unicamp.br
Abstract
The main purpose of this paper is to analyze the efficiency of Clean Development
Mechanism (CDM) projects implemented worldwide and understand their main
characteristics, seeking to support investment decisions and expand the scientific
understanding of the financial and environmental impact of these projects. To
achieve this goal, a sample of 2352 CDM projects was selected from a United
Nations Framework Convention on Climate Change (UNFCCC) database and
analyzed first with a two-stage data envelopment analysis (DEA) model that allowed
the evaluation of the financial return and environmental efficiency of these projects.
DEA results provide an efficiency ranking that was then analyzed with a classification
tree (CHAID algorithm), revealing some main characteristics of the projects with
higher efficiencies, like their sizes, locations, and type of CDM. CDMs are projects
that demand a significant quantity of resources and effort to produce the expected
outcomes, so it is crucial for public managers and investors to know the project
profiles that generate the best financial and environmental results. In this sense, this
study presents a completely original methodology for this kind of analysis and reveals
important insights for these agents and researchers in this field.

1 | I N T RO DU CT I O N The protocol was implemented on February 16, 2005, considering

In the past decades, the concern with global warming has led govern-
ment managers to search for alternatives that allow economic
development while minimizing environmental impacts. One of the
main milestones in this scenario was the creation of the Kyoto
Protocol (KP), a treaty that established targets for reducing green-
house gas (GHG) emissions for developed countries.
According to Mohammed (2019), KP is the structural basis upon
which worldwide efforts to address global climate change are
founded. It consists of an international agreement related to the
United Nations Framework Convention on Climate
(UNFCCC), which commits its parties to internationally binding
emission reduction targets aimed at addressing the impact of global
warming.
a first commitment period from 2008 to 2012 and a second period
from 2013 to 2020, where participating countries were divided into
Annex I and Annex II. These parties undertook to reduce GHG
emissions by an average of 5% compared with the levels of 1990.
In the second commitment period, from 2013 to 2020, parties
undertook to improve the reduction to 18% of that same level
(UNFCCC, 2022).
To achieve the emission reduction goals, the protocol established
the creation of flexibility instruments, that is, mechanisms that allow
developed countries to fulfill part of their goals in other countries by
Change the creation and development of the carbon certificate market.
Among the proposed flexibility instruments, the Clean
Development Mechanism (CDM) stands out, since it is the only one
that allows cooperation between developed and developing countries.

926 © 2022 John Wiley & Sons Ltd. wileyonlinelibrary.com/journal/mde Manage Decis Econ. 2023;44:926–941.

PACAGNELLA JÚNIOR ET AL.
According to Zhang et al. (2018), CDMs are elements proposed
by the KP to encourage sustainability in developing countries
(i.e., CDM host countries) through the sale of emission reduction
certificates (CER), which can be obtained with GHG mitigation
projects, to developed countries (i.e., CDM investment countries).
This instrument has been widely implemented since its creation,
constituting a new business model with technological support and
financial resources from public and private sources in developed
countries that currently revolve around US$ 100 billion/year
(Metz, 2013).
According to the UNFCCC (2022a), the first CDM project was
registered in 2004, with Brazil as the host country; after 2004, the
number of registrations had an exponential growth until 2012,
declining shortly after that year. In the analyzed historical series, 7845
projects are registered, 4672 long-term projects with the capacity to
reduce 930 GtCO2eq per year, and 3173 short-term projects with the
capacity to reduce 84 GtCO2eq per year. Figure 1 shows the
registered projects per country.
As can be seen in Figure 1, 10 countries represent 87.67% of all
registered CDM projects: China (3763 projects; 47.97% of total), India
(1685; 31.48%), Brazil (344; 4.38%), Vietnam (258; 3.29%), Mexico
(192; 2.45%), Indonesia (148; 1.89%), Thailand (144; 1.84%), Malaysia
(143; 1.82%), Chile (111; 1.41%), and Republic of Korea (90; 1.15%).
Also, according to UNFCCC (2022), the distribution of projects by
scope can be seen in Figure 2.
Figure 2 shows that the energy industry is responsible for the
majority of implemented CDM projects (75.2%), followed by waste
handling and disposal (10.7%), the manufacturing industry (4.3%), and
agriculture (2.3%). Projects with other scopes represent less than 10%
of the total.
The implementation of a CDM project must be realized under the
supervision of the CDM executive board (CDM EB), which by its turn
follows the authority and guidance of the Conference of the Parties
(COP) to the KP. The responsibilities of the CDM EB includes
(1) developing procedures for the CDM, (2) approving new methodol-
ogies, (3) accreditation of the designated operation entities (DOEs),
(4) registering projects according to specific procedures, (5) issuing
certified emission reduction (CER) earned by the CDM, (6) making
public all information on proposed CDM projects in need of funding
and on investors seeking opportunities, (7) maintaining a public
F I G U R E 1 Registered Clean Development Mechanism
(CDM) projects per country. Source: UNFCCC (2022)
10991468, 2023, 2, Downloaded from https://onlinelibrary.wiley.com/doi/10.1002/mde.3722 by University Estadual De Campina, Wiley Online Library on [03/11/2023]. See the Terms and Conditions (https://onlinelibrary.wiley.com/terms-and-conditions) on Wiley Online Library for rules of use; OA articles are governed by the applicable Creative Commons License
927
database of CDM project activities, and (8) developing and maintain-
ing CDM registry (Mohammed, 2019).
For Trotter et al. (2015), in addition to the environmental
contribution, CDM projects have a very important economic aspect
by attracting investments and transferring low-emission technologies
to developing countries, which promotes sustainable development.
In general, CDMs are capital projects, which require large
investments to be implemented. The financial resources for this
purpose can be public and/or private, but, as with any projects of this
type, to attract investments, one must offer a satisfactory relationship
between the risks involved and the expected return.
In this sense, Wu et al. (2017) state that one should understand
the total panorama of the performance in emission reduction costs of
all the implemented projects since the results can guide the industrial-
ized countries in the selection of the types of projects to be carried
out, helping them to fulfill their emission reduction obligations, and
help developing countries that host projects to obtain reduction
certificates at the lowest total cost. Likewise, it is essential to identify
the countries with the lowest investment costs and with the greatest
potential for generating CERs.
In addition, although the economic dynamics that a developed
country can invest in a developing country are promising, the volatility
in carbon prices, among other elements, can make a CDM project not
reach its full potential, which leaves investors naturally cautious
(Carmichael et al., 2015).
F I G U R E 2 Distribution of Clean Development Mechanism (CDM)
projects by scope. Source: UNFCCC (2022a)

928
The attractiveness of a CDM project, like all other kinds of
projects, depends on its capacity to meet the expectations of the
stakeholders involved. Investors tend to look at the return on invest-
ment, that is, how efficient the project is in transforming the invested
resources into future earnings. In the same way, other stakeholders,
concerned with the environmental return, will be interested in
developing projects that have a great capacity to reduce emissions to
the maximum with the resources that have been employed. These
aspects are also of scientific interest, and several studies were
dedicated to better understanding the performance of this kind of
projects, using different approaches, like the capacity to generate
CERs as in Koo (2017), the internal rate of return (IRR) as in
Carmichael et al. (2016), and Monteiro et al. (2021), or the abatement
costs, like Simon et al. (2017).
However, considering the nature of a CDM, as an instrument
capable of generating financial return and also environmental benefits
by the reduction of GHGs and also the several possibilities of different
types of CDM to invest in, the scientific literature seems to lack
studies that evaluate these capabilities together, comparatively among
the types of CDM. In this sense, Zhang et al. (2018) indicate that it is
greatly significant to investigate the efficiency in financial return and
carbon emission reduction performance in CDM projects.
Therefore, by considering these arguments, the motivation for
this research is to pursue a new form of analysis that can be used to
better understand the performance of all types of CDM projects to
produce insights for researchers of this subject and also for investors.
Therefore, by considering these arguments, this paper aims to
analyze the efficiency of the CDM projects carried out worldwide and
to understand their main characteristics. The contribution of this
research mainly includes two aspects. First, of academic interest, is to
promote a discussion about the comparative performance of these
projects, regarding their financial and environmental contributions,
which, to our best knowledge, is still a gap in scientific literature. The
second, which is of interest to investors, project managers, and policy-
makers involved with this kind of project, as well as all those inter-
ested in GHG reduction and sustainability issues, is to provide
information to guide investment decision-making for new CDM
projects.
The remainder of this paper is organized as follows: Section 2 pre-
sents a review of the literature related to CDMs. Section 3 describes
the research methods employed in this study. Section 4 is dedicated
to describing the data used. The results of the analysis techniques are
described in Section 5 (DEA results) and Section 6 (chi-squared auto-
matic interaction detection [CHAID] results), while the conclusion and
policy implications are finally presented in Section 7.
2 | C DM P RO J EC TS
This section, besides offering support to empirical research, seeks to
present useful elements to understand what are, which are the types,
stages of the life cycle, costs, and main obstacles of CDM projects.
The central idea is to provide insights, so that investors and public
10991468, 2023, 2, Downloaded from https://onlinelibrary.wiley.com/doi/10.1002/mde.3722 by University Estadual De Campina, Wiley Online Library on [03/11/2023]. See the Terms and Conditions (https://onlinelibrary.wiley.com/terms-and-conditions) on Wiley Online Library for rules of use; OA articles are governed by the applicable Creative Commons License
PACAGNELLA JÚNIOR ET AL.
managers can use the knowledge presented here, in the results
section, to support their decisions concerning these types of projects.
According to Lam et al. (2015), emissions trading (ET) was first
proposed in 1968 by John Dales, a Canadian economist, who had the
idea of using market forces to reduce pollution by making companies
buy and sell the right to pollute. To enable ET to be implemented, an
institutional framework was needed, especially at an international
level, like the CDM, as proposed in the KP.
A CDM is an emission reduction mechanism that relies on the
European Union Emission Trading Scheme (EU ETS), which provides a
platform for developed and developing countries in controlling of
GHGs, enabling the reduction of total abatement costs while achiev-
ing the same emission reduction targets. Thus, for the developed
countries, the cost of compliance is lower, and its flexibility is
improved; on the other hand, for developing countries, both capital
and technology can be obtained from developed countries with a
reduced marginal abatement cost (Cui et al., 2020).
The KP divides countries into “annexes” according to the GHG
emission reduction goals stipulated. According to Purohit (2009), a
CDM project creates opportunities for Annex I countries (industrial-
ized countries) to invest in non-Annex I countries (developing coun-
tries) to reduce gas generation and foster sustainable development.
Another important aspect is highlighted by Li and Lin (2021),
arguing that the CDM includes the regular CDM projects (PA) and also
the CDM programme of activities (PoA), where it is possible to
register a coordinated implementation of a policy, measure, or goal
that leads to emission reduction. Under a registered PoA, an unlimited
number of component project activities can be added without
undergoing the complete CDM project cycle. To the authors, the
implementation of PoA aims to reduce the imperfections of the
regular CDM projects (PA), helping non-Annex I countries with a
chance to participate in the CDM project with lower costs.
For Amatayakul and Berndes (2012), CDM projects are consid-
ered by far the most widely used carbon market instrument in the
world, having enormous economic relevance, since they move values
in the order of several billion euros.
Such investments are made in various types of projects that,
according to the UNFCCC (2015), can be classified according to
Figure 3.
Figure 3 shows the categories of the several types of CDM
projects. The Renewed resourced-based category includes projects for
generating power from burning biomass or biogas, harnessing
geothermal or solar heat, and mechanical power from hydroelectric,
tidal, and wind generation. The energy efficiency category involves
projects for generating clean electricity, increasing efficiency in its
distribution, or reducing its consumption. The CH4, coal bed/mine,
and cement category, on the other hand, is related to projects using
methane gas from landfills or coal mines, the replacement of clinker in
cement production, and the capture of carbon dioxide (CO2) or meth-
ane (CH4) produced by industrial processes. The fossil fuel category
involves replacing fossil fuels with clean options and improving
methodologies for mass transportation. Forestation is about reducing
emissions or carbon sequestration through forests, and finally, the

PACAGNELLA JÚNIOR ET AL.
F I G U R E 3 Clean Development Mechanism
(CDM) project types. Source: UNFCCC (2015)
“Others” category brings together projects that avoid methane
emissions and any others that involve more than one type of
renewable energy generation.
For a CDM project to be approved and able to generate CERs, it
must meet, according to the United Nations (2001), the following
requirements:
• Have approved voluntary participation from each party involved;
• Present real, measurable, long-term benefits related to climate
change mitigation;
• The emission reductions must be additional to those that would
occur in the absence of the certified project activity.
By these requirements, one seeks to select projects that contribute to
the mitigation of GHGs and that generate sustainable development in
the host countries. In this sense, Li and Lin (2021) argue that CDMs
improve the economy and contribute to the sustainable development
of host countries; besides, carbon emission reduction and its imple-
mentation tend to happen with promising technology transfer and
capital investments.
Paulsson (2009) argues that CDM has an intricate system of rules
to ensure that its goals are met. According to the author, the highest
authority on the CDM is the COP, which serves as the meeting for
the participants of the KP (COP/MOP), but the day-to-day oversight
of the mechanism is carried out by the CDM EB, which accredits
DOEs to conduct the tasks of validating, verifying, and certifying the
CDM project activities during its life cycle.
According to Chen et al. (2021), the most important criterion for
CDM to be approved by the EB is that the project must have an
“additionality” requirement thus generally resulting in the exclusion of
projects the “business-as-usual” per se and that issuance of CER only
occurs for projects that would not be viable without it.
Montini (2014) argues that the life cycle of a CDM project
consists of seven main steps: project development, host country
approval of the project, project validation, project registration, project
implementation and monitoring, project verification and certification,
10991468, 2023, 2, Downloaded from https://onlinelibrary.wiley.com/doi/10.1002/mde.3722 by University Estadual De Campina, Wiley Online Library on [03/11/2023]. See the Terms and Conditions (https://onlinelibrary.wiley.com/terms-and-conditions) on Wiley Online Library for rules of use; OA articles are governed by the applicable Creative Commons License
929
F I G U R E 4 Clean Development Mechanism (CDM) project cycle.
Source: Montini (2014)
and issuance of CER. The author also proposes the approximate time
durations and the costs for each step of the project, as presented in
Figure 4 and Table 1.
Figure 4 shows that the first two steps (project development and
host country approval) take about 6 months to a year, with the most
time consumption before the project starts. The validation of the pro-
ject is done in part parallel with the approval of the host country and
is also within this period, whereas project registration takes about
1.5 months to complete, and, after this stage, it is already possible to
implement the project (the duration can vary enormously depending
on the type of project and local conditions). After the project is imple-
mented, the executive board starts to verify the project, and the CERs
are issued, which last for a few years, varying from project to project.
Table 1 presents cost estimates for the life cycle steps of small
(with GHG removal <16,000 ton-CO2/year) and large CDM projects.
As can be seen, the costs can vary greatly in the steps that make up
the planning phase, with small projects ranging from US$18,500 to
$117,000 and large projects from US$38,500 to $610,000. The values
associated with the construction phase can vary enormously depend-
ing on the type of CDM, but when it goes into operation, we highlight
the costs associated with the UN adaptation fund (2% of the CERs)
 10991468, 2023, 2, Downloaded from https://onlinelibrary.wiley.com/doi/10.1002/mde.3722 by University Estadual De Campina, Wiley Online Library on [03/11/2023]. See the Terms and Conditions (https://onlinelibrary.wiley.com/terms-and-conditions) on Wiley Online Library for rules of use; OA articles are governed by the applicable Creative Commons License
930 PACAGNELLA JÚNIOR ET AL.

TABLE 1 Clean Development Mechanism (CDM) projects costs description

Activity Large-scale CDM (US$) Small-scale CDM (US$) Description

Initial feasibility study, that is, project idea note (PIN) 5000
30,000 2000
7500 Consultancy fee or internal
Project design document (PDD) 15,000–100,000 10,000
25,000 Consultancy fee or internal
New methodology (if required) 20,000–100,000 20,000
50,000 Consultancy fee or internal
(incl. US$ 1000 UN registration fee)
Validation 8000
30,000 6500
10,000 DOE fee
Registration fee 10,500
350,000 0–24,500 EB fee
Total CDM-specific costs—Planning phase 38,500–610,000 18,500–117,000
Construction phase
Construction, plant, and equipment Variable, depending on project type Contractors fees
Installation of monitoring equipment Usually minimal relative to total plant and equipment cost Contractors fees
Total CDM-specific costs—Construction phase Usually minimal relative to total plant and equipment cost
Operation phase
UN adaptation fund fee 2% of CER 2% of CER EB fee
Initial verification (incl. system check) 5000
30,000 5000
15,000 DOE fee
Ongoing verification (periodically) 5000
25,000 5000
10,000 DOE fee
Share of proceeds to cover administration expenses The fee paid at registration is effectively an advance that will EB fee
(SOP-admin) be “trued up” against actual CER issued over the crediting
period
Total CDM-specific costs—Operation phase Variable—Minimum 2% of CER plus 5000/year
(if verification undertaken annually)

Source: Elaborated by the authors.

and the verification (initial and continuity verification), which range
from US$5000 to US$15,000 for small projects and US$5000 to US
$30,000 for large projects. Finally, there is an administration fee of US
$5000 plus 2% of the CERs.
It is important to note that, although the information contained in
Figure 4 and Table 1 serves only as baselines, they are relevant to
better understanding the development of CDM projects (which can
be useful, especially for investors).
Other important elements when evaluating the possibility of
investments in CDM projects are the difficulties imposed on these
ventures. In this sense, Bufoni et al. (2017) argue that there are five
main types of obstacles to executing this type of project:
a. Political and socioeconomic environment—although they may vary
according to the local stakeholders' perspective, usually this
obstacle involves a lack of technical knowledge, lack of economic/
financial support, sociocultural aspects (lack of
awareness), and lack of social and legal infrastructure.
b. Regulatory obstacles—according to Yoon and Sim (2015), they
involve political interests in other sectors, unwillingness to pro-
mote a GHG reduction policy, low financial potential, disorganized
and unsystematic legislation, low level of institutional coordination,
and lack of regular monitoring, evaluation, and
instruments.
c. Financial obstacles—they are associated with expenses in operation
or capital, private profit, attractiveness, or break-even point. CDM
projects, in addition to the little information available for invest-
ment analysis, are usually profitable only from the issue of CERs;
thus, when comparing them to other types of investments, they
may not be attractive.
d. Technological obstacles—involve difficulties arising from the
technologies chosen for the project, or from existing gaps in some
specific sector linked to the CDM, the lack of experience with the
use of some technology, and also the high level of technological
complexity employed in some projects.
e. Human resource obstacles—associated with a shortage of human
resources or skills in engineering, operation, maintenance, calibra-
tion, technical aspects, and other procedures associated with the
project.
In addition, Cormier and Bellassen (2013) argue that 69% of CDM
projects fail because they encounter some source of problems or
society's incompatibilities in the initial phases of the process, especially in the
validation stage. The authors also report that only 31% of the
expected CER were issued in the ideal period, 39% were not issued in
the expected time (mostly due to delays during the approval process),
and 30% will never be issued due to design flaws.
Okereke et al. (2012) state that the need to mitigate climate
auditing change and simultaneously meet the reduction targets proposed in
the KP while still bringing economic growth, imposes challenges on
managers and rulers; however, Benites-Lazaro et al. (2018) argue that
investors are motivated to invest in CDM projects by the returns

PACAGNELLA JÚNIOR ET AL.
coming from CERs and also by their interest in improving the
environment.
Nevertheless, projects of this type carry substantial uncertainties,
such as the possibility of not obtaining registration, validation, and
CERs, in addition to local government approval (Hultman et al., 2012).
Therefore, it is of fundamental importance to analyze, besides the
traditionally addressed issues, such as return on investment or
payback period, the types of projects, and places with greater chances
of success in the venture, mitigating potential risks.
One way to analyze the performance of CDM projects presented
in the scientific literature is by evaluating the efficiency obtained by
these projects (in one or more dimensions) and identifying the charac-
teristics of those that stand out. For example, Luo et al. (2017) evalu-
ated the efficiency improvement in low carbon technological
innovation with the presence of CDMs, while Zhang et al. (2018)
assessed the energy efficiency and carbon emission performance of
these projects, while Keivani et al. (2021) measured the environmental
efficiency of the oil, gas, and petrochemical industry.
This type of evaluation, which seeks to understand the character-
istics of units that are comparatively more efficient than similar ones
to support business decisions, is widely used, in research in many
areas, such as Pacagnella Junior et al. (2020), who carried out a
comparative analysis of the efficiency of public and private airports;
Campisi et al. (2021), who studied the efficiency of knowledge inten-
sive business services industry; and Thaker et al. (2022) that evaluated
the financial efficiency of banks and their corporate governance,
among others.
As in this study, the object of interest is CDM projects, and there
are two dimensions of analysis that stand out: The first is financial
efficiency, since these projects involve large investments and their
stakeholders demand a return, and the second is environmental
efficiency or the efficiency in reduction of GHGs since the main
objective of a CDM is the reduction of these gases to mitigate the
greenhouse effect.
Considering this scenario, it is possible to establish two hypothe-
ses to be investigated:
• H1: There are CDM projects that are significantly more efficient in
terms of financial efficiency.
• H2: There are CDM projects that are significantly more efficient in
reducing GHGs.
Thus, the next section presents an analysis proposal, based on the
efficiency of the CDMs in transforming resources into a financial and
environmental return and classifying them in a rank that indicates to
F I G U R E 5 Two-stage network DEA model.
Source: Elaborated by the authors
10991468, 2023, 2, Downloaded from https://onlinelibrary.wiley.com/doi/10.1002/mde.3722 by University Estadual De Campina, Wiley Online Library on [03/11/2023]. See the Terms and Conditions (https://onlinelibrary.wiley.com/terms-and-conditions) on Wiley Online Library for rules of use; OA articles are governed by the applicable Creative Commons License
931
stakeholders the most attractive characteristics and locations for
these projects to be carried out.
3 | RE SE AR C H ME T H OD S
To achieve the research objective proposed at the beginning of the
article, this research was structured in two stages, both quantitative,
which used secondary data from the UNFCCC. The first stage sought
to evaluate the efficiency of the CDM projects carried out, using the
data envelopment analysis (DEA) technique, while the second stage
used classification and regression trees to characterize the projects
analyzed to broaden the understanding of the performance of the
several types of CDMs implemented and provide subsidies for invest-
ment decisions.
According to Campisi et al. (2019), DEA is a nonparametric
optimization-based method that starting from data on inputs and
outputs of a selected sample of decision-making units (DMUs), which
are the CDM projects in this case, allows to construct a piece-wise
linear surface over data points known as production frontier
(or envelopment). The frontier is defined by the solution of a
sequence of linear programming problems, and the distance between
this frontier and the observed data point (DMU input/or output)
measures the relative technical efficiency.
A variety of studies using DEA models have been published, and
the technique has been widely applied to performance appraisal for a
wide range of business scenarios and industrial sectors, becoming one
of the most popular techniques for efficiency analysis (Campisi
et al., 2021). The approach used to analyze the efficiency of the
projects and use it as an indicator to subsidize investments,
although unusual in the literature is not new; Song et al. (2015),
Bostian et al. (2016), and Zeng et al. (2018) can be mentioned as
examples. In this sense, a two-stage network DEA is proposed, as
shown in Figure 3.
The approach proposed for the first stage, to analyze the
efficiency of the projects and use it as an indicator to subsidize invest-
ments, although unusual in the literature, is not new, and Song et al.
(2015), Bostian et al. (2016), and Zeng et al. (2018) can be mentioned
as examples. In this sense, a two-stage network DEA is proposed, as
shown in Figure 5.
Network DEA consists of using the DEA technique to measure
the relative efficiency of systems, considering their internal structure.
The results are more meaningful than those of conventional DEA
(black box approach), in which the internal components of the
processes are ignored (Koo, 2017).
 10991468, 2023, 2, Downloaded from https://onlinelibrary.wiley.com/doi/10.1002/mde.3722 by University Estadual De Campina, Wiley Online Library on [03/11/2023]. See the Terms and Conditions (https://onlinelibrary.wiley.com/terms-and-conditions) on Wiley Online Library for rules of use; OA articles are governed by the applicable Creative Commons License
932 PACAGNELLA JÚNIOR ET AL.

In the model proposed in Figure 5, the first stage refers to the efficiency, associated with the use of resources invested in the
efficiency of the project in generating a financial return from the project and their ability to generate financial returns from energy
consumption of two important inputs in any type of project: time and production and CERs, and the environmental efficiency, which is
invested capital, and in producing two elements that will generate related to the conversion of the CDM operation into total GHG
revenue for the enterprise: energy and CERs. The second stage reductions.
considers that, from the outputs of the first stage, the project has as a The second stage of the research consists in analyzing the charac-
final result the reduction of GHG emissions. It is still possible to teristics of the projects in terms of their efficiency. For this, the tech-
calculate the overall efficiency of the CDM projects as the product of nique used in this study is the classification tree, in which, according
the two stages. to Iorio et al. (2019), a tree is a graph connected and oriented by a set
The model assumes that CDM projects are DMUs, and DMUj of nodes, where two nodes are connected by exactly one path. This is
( j = 1, 2, …, n) has D intermediate measurements zdj (d = 1, 2, …, D), a binary partitioning technique, which can be traversed from its root
in addition to initial inputs xij (i = 1, 2, …, m) and final outputs yrj to the leaves by answering only simple questions of the type that
(r = 1, 2, …, s). In addition, the weights vi, wd, and rd, which are non- belongs/does not belong to a class, and which generates a visual
negative and unknown, are considered. Thus, the two-stage DEA result, presenting groups that are homogeneous among themselves
model has the following configuration: and heterogeneous among the others.
Among the various existing algorithms for operationalizing the
X
s
technique, the CHAID was adopted. According to Díaz-Pérez et al.
θGlobal
0 ¼ Max ur yro ð1Þ
r¼1 (2020), among the various existing segmentation techniques, the
CHAID algorithm is one of the most effective. The authors argue that,
s.r because it is a nonparametric technique, its main advantages are the
possibility of using several variables in the model; the fact that
X
s X
D
nominal and interval variables can be used as predictors and the
ur yrj
wd zdj ≤ 0, j ¼ 1, 2, …n ð2Þ
r¼1 d¼1 possibility of using continuous variables as criteria, because they can
be dichotomized.
X
D X
m The CHAID algorithm consists of the interactive development of
wd zdj
v 1 xij ≤ 0, j ¼ 1, 2, …n ð3Þ
d¼1 d¼1
a classification tree based on Pearson's chi-square statistic, or an
F test and its corresponding p values, performing splits on heteroge-
X
m neous populations and identifying homogeneous groups according to
v i xio ¼ 1 ð4Þ
the dependent variables. Thus, the algorithm seeks to minimize
i¼1
variations in the dependent variables within groups and maximize
wd ≥ 0, d ¼ 1, 2, …D ð5Þ them between them. (Milanovic & Stamenkovic, 2016).
Therefore, the methodological proposal in this research is to
vi ≥ 0, i ¼ 1, 2, …m ð6Þ combine the two techniques (Network DEA and CHAID classification
trees) to analyze the efficiency of CDM projects and identify the
ur ≥ 0, r ¼ 1, 2, …s ð7Þ characteristics of more efficient projects in both stages, generating
useful information for researchers and investors (and other
where θ0Global is the overall efficiency level of the two-stage process stakeholders) interested in CDM projects.
for DMUo. Assuming that Model 1 has a single solution, the efficien-
cies for the first and second stages are calculated by
4 | SAMPLE DESCRIPTION
X
D
θ01:FinancialReturn ¼ wd zdo , ð8Þ
d¼1 The sample of CDM projects used in this study was made available by
the UNFCCC at https://cdm.unfccc.int/. After analyzing the projects
X
S X
D and excluding those with missing data, the sample used included 2352
θ2:GHGsReduction
0 ¼ ur yro = wd zdo , ð9Þ
r¼1 d¼1
valid projects.
The projects were carried out in 54 countries, with China, Brazil,
and India as the main hosts and accounting for about 85% of the total
Since a single solution is assumed, it is possible to define number of projects.
The general characteristics of the data under study for the five
θGlobal
0 ¼ θFinancialReturn
0  θGHGsReduction
0 ð10Þ variables under analysis are presented in Table 2.
Table 2 presents descriptive statistics for the five variables used
Therefore, the overall efficiency of the CDM projects can be in the DEA model, and the mean approval time for a CDM project is
calculated as the product of two efficiencies: the financial return 395.62 days, with a mean invested capital of approximately US$ 59.5
 10991468, 2023, 2, Downloaded from https://onlinelibrary.wiley.com/doi/10.1002/mde.3722 by University Estadual De Campina, Wiley Online Library on [03/11/2023]. See the Terms and Conditions (https://onlinelibrary.wiley.com/terms-and-conditions) on Wiley Online Library for rules of use; OA articles are governed by the applicable Creative Commons License
PACAGNELLA JÚNIOR ET AL. 933

TABLE 2 Sample description

Time until approval Capital investment Total reductions Installed capacity

Descritivos (Geral) (days) (US$) (ton-CO2/year) (GW) Total CER
N 2.352 2.352 2.352 2.352 2.352
Mínimo 30.00 500,000.00 827.00 0.50 1033.00
Máximo 1834.00 5,437,314,560.00 6,180,620.00 3750.00 23,344,635.00
Média 395.62 59,590,387.92 168,823.36 55.10 350,762.82
Desvio-Padrão 237.86 165,445,599.94 350,466.79 152.33 872,280.15
Erro-Padrão 4.90 3,411,430.77 7,226.50 3.14 17,986.11
Coeficiente de Variação 60.12% 277.64% 207.59% 276.48% 248.68%

Source: Elaborated by the authors.

million. Regarding the outputs of the CDM projects, one can see that,
on average, about 168.8 thousand tons of CO2/year are removed,
generating more than 350 thousand CERs with an average installed
capacity of about 55 GW.
From this data, one can also observe a lot of variation in the data,
especially in the capital investment item, since there are projects with
investments from US$ 500 thousand up to about US$ 5.5 billion. This
discrepancy between the investment values reflects directly on the
total reductions achieved, but it reflects very little on the total CERs
acquired. These large variations are probably associated with the
different characteristics of the projects in the sample, such as size,
location, and type of CDM.
5 | D E A RE S U LT S
This section will present and discuss the results obtained using the
DEA technique for the two stages of efficiency and overall efficiency.
The results are summarized in Table 3.
Because it is a very large sample, it is not possible to present the
complete ranking with the DEA scores to directly compare the DMUs,
as occurs in most studies that use this technique. To present
the results of the model in Figure 3, it was necessary to construct
the descriptive statistics of the ranking, including the minimum
and maximum efficiency values and the standard deviation for all
CDM categories, for the financial, environmental, and overall
efficiencies.
Thus, Table 3 shows that, regarding the first stage of the model
(financial return efficiency), the category of projects with the highest
average efficiency is methane avoidance (75.19%), followed by
biomass energy (56.97%), mixed renewables (57.07%), landfill gas
(51.25%), and fossil fuel switch (50.59%), with all other categories
achieving less than 50% on average in this stage of the model.
Another relevant aspect of the results of this stage is that eight of the
13 categories (61.64%) have projects considered as benchmarks
(100%), which indicate that, although the average efficiency
values point to a higher probability of financial return in projects in
the highlighted categories, there are many possibilities among the
different types of CDM projects to achieve financial efficiency.
When analyzing the results of the second stage of the model
(environmental efficiency), one can see that the average efficiency
levels are higher, especially for methane avoidance (83.50%), mixed
renewables (72.35%), landfill gas (68.38%), and coal bed/mine
(63.34%). All other categories range from about 52.57%, except hydro,
which is the category with the highest number of CDMs completed
but is the negative highlight for environmental efficiency, with
48.90%.
As with the results obtained in the first stage, one can observe
that eight of the 13 categories have projects that can be considered
benchmarks (100% environmental efficiency), which indicates that,
although the average values of the categories should be considered, it
is possible to be environmentally efficient in several of them.
Combining the results of the two stages produces the overall
efficiency ranking. This indicator is proportionally lower and more
demanding than the previous ones because it is the multiplication of
the two results. In this sense, only the categories methane avoidance
(64.10%) and mixed renewables (40.50%) stand out positively, while
all the others obtained values well below these.
Concerning the results obtained by each continent, Table 4
presents an overview of their descriptive statistics.
The African projects were mostly related to wind power plants,
which demanded high capital investments with returns relatively
below what is expected for such amounts; this can be observed in the
financial return efficiency of their projects, which, except for two of
them, were always very close to the average.
On the Asian continent, projects are mostly related to wind and
hydropower; given a large number of projects, their size, investment
levels, and CERs issued cause large variations in their efficiency
metrics.
In America, the projects are more aimed at hydroelectric energy,
with some highlights for plants that present high indices of financial
return and environmental efficiency, and also aimed at the use of
biomass, which cheapens the industrial cost with the generation of
energy coming from the residues of their main activity, as it
happens in the sugarcane and cornmills. If only these projects are
analyzed, one can see that, despite being large projects, with high
investments, their financial return efficiency reaches significant
results.
 10991468, 2023, 2, Downloaded from https://onlinelibrary.wiley.com/doi/10.1002/mde.3722 by University Estadual De Campina, Wiley Online Library on [03/11/2023]. See the Terms and Conditions (https://onlinelibrary.wiley.com/terms-and-conditions) on Wiley Online Library for rules of use; OA articles are governed by the applicable Creative Commons License
934 PACAGNELLA JÚNIOR ET AL.

TABLE 3 DEA results by project type

Project type Economic efficiency (%) Environmental efficiency (%) Global efficiency (%)
Biomass energy (148) Mean 56.97 52.21 30.05
Minimum 18.37 12.50 7.11
Maximum 100.00 100.00 100.00
Std. deviation 22.86 15.16 17.75
Coal bed/mine methane (39) Mean 40.30 63.34 26.00
Minimum 35.02 53.60 18.92
Maximum 73.74 100.00 73.74
Std. deviation 7.19 13.41 10.17
EE own generation (130) Mean 41.22 56.76 23.78
Minimum 34.94 27.17 10.43
Maximum 100.00 100.00 100.00
Std. deviation 8.62 6.93 9.08
EE supply side (11) Mean 47.95 55.50 26.90
Minimum 36.00 51.95 18.71
Maximum 100.00 65.70 54.35
Std. deviation 20.41 4.68 12.42
Fossil fuel switch (38) Mean 50.59 55.37 29.04
Minimum 34.86 51.04 17.80
Maximum 100.00 100.00 100.00
Std. deviation 20.09 10.82 17.25
Geothermal (9) Mean 37.09 56.04 20.90
Minimum 34.52 51.33 17.72
Maximum 40.69 75.34 30.32
Std. deviation 2.30 7.51 3.98
Hydro (856) Mean 47.83 48.90 23.53
Minimum 10.31 21.15 2.25
Maximum 100.00 100.00 100.00
Std. deviation 17.34 11.85 11.55
Landfill gas (83) Mean 51.25 68.38 36.95
Minimum 34.93 51.78 18.09
Maximum 100.00 100.00 100.00
Std. deviation 17.50 14.64 20.51
Methane avoidance (59) Mean 75.19 83.50 64.10
Minimum 9.53 44.00 7.92
Maximum 100.00 100.00 100.00
Std. deviation 17.02 16.27 22.16
Mixed renewables (2) Mean 57.07 72.35 40.50
Minimum 24.68 69.91 18.46
Maximum 89.45 74.79 62.53
Std. deviation 45.80 3.45 31.16
Solar (31) Mean 35.98 53.81 21.68
Minimum 6.04 22.63 1.37
Maximum 86.74 100.00 86.74
Std. deviation 19.04 18.26 17.84
Wind (944) Mean 41.03 52.02 21.68
Minimum 16.12 21.45 4.38
 10991468, 2023, 2, Downloaded from https://onlinelibrary.wiley.com/doi/10.1002/mde.3722 by University Estadual De Campina, Wiley Online Library on [03/11/2023]. See the Terms and Conditions (https://onlinelibrary.wiley.com/terms-and-conditions) on Wiley Online Library for rules of use; OA articles are governed by the applicable Creative Commons License
PACAGNELLA JÚNIOR ET AL. 935

TABLE 3 (Continued)

Project type Economic efficiency (%) Environmental efficiency (%) Global efficiency (%)
Maximum 100.00 100.00 100.00

Std. deviation 12.47 8.57 9.59

Fugitive (1) Mean 36.97 54.86 20.28
Tidal (1) Mean 38.12 52.70 20.09
Total (2352) Mean 45.84 52.84 24.82
Minimum 6.04 12.50 1.37
Maximum 100.00 100.00 100.00
Std. deviation 16.91 12.73 14.11

Source: Elaborated by the authors.

TABLE 4 DEA results by continent

Region Economic efficiency (%) Environmental efficiency (%) Global efficiency (%)
Africa (28) Mean 38.91 51.87 20.50
Minimum 16.63 30.91 5.14
Maximum 93.48 69.62 65.08
Std. deviation 14.01 7.09 9.53
Americas (153) Mean 43.67 54.53 24.81
Minimum 13.76 24.11 3.32
Maximum 100.00 100.00 100.00
Std. deviation 17.34 14.57 15.27
Asia (2166) Mean 46.07 52.72 24.87
Minimum 6.04 12.50 1.37
Maximum 100.00 100.00 100.00
Std. deviation 16.89 12.64 14.07
Oceania (4) Mean 52.21 58.39 31.79
Minimum 34.57 33.58 16.61
Maximum 63.10 74.44 46.92
Std. deviation 13.26 19.83 16.91
Europe (1) Mean 35.17 51.64 18.16
Total (2352) Mean 45.84 52.84 24.82
Minimum 6.04 12.50 1.37
Maximum 100.00 100.00 100.00
Std. deviation 16.91 12.73 14.11

Source: Elaborated by the authors.

On the European continent, only one project was developed in
Albania, which deviates from the very definition of a CDM. This pro-
ject was aimed at generating hydroelectric power with an investment
of over US$ 200 million and presented low-efficiency rates.
Despite presenting a small number of projects, Oceania is the
continent that has the highest efficiency averages on all three fronts.
The projects developed in this continent are considered small, with an
average investment of US$ 9 million, but they demanded more time
for approval than similar projects developed in other countries, which
hurt their financial efficiency.
6 | CHAID R ES ULTS
The purpose of using the classification tree with the CHAID method
in this study is to classify the sample of CDM projects to understand
their main characteristics. In this sense, two trees were built. The first,
represented by Figure 6, aims to characterize the financial return
efficiency, while the second, represented by Figure 7, aims to
characterize the environmental efficiency.
Figure 6 shows that the first significant partition to represent the
sample (p value < .000 and F statistic = 1540.984), regarding financial
10991468, 2023, 2, Downloaded from https://onlinelibrary.wiley.com/doi/10.1002/mde.3722 by University Estadual De Campina, Wiley Online Library on [03/11/2023]. See the Terms and Conditions (https://onlinelibrary.wiley.com/terms-and-conditions) on Wiley Online Library for rules of use; OA articles are governed by the applicable Creative Commons License
PACAGNELLA JÚNIOR ET AL.

CHAID results for financial return efficiency. Source: Elaborated by the authors FIGURE 6
936
10991468, 2023, 2, Downloaded from https://onlinelibrary.wiley.com/doi/10.1002/mde.3722 by University Estadual De Campina, Wiley Online Library on [03/11/2023]. See the Terms and Conditions (https://onlinelibrary.wiley.com/terms-and-conditions) on Wiley Online Library for rules of use; OA articles are governed by the applicable Creative Commons License
937

CHAID results for environmental efficiency. Source: Elaborated by the authors FIGURE 7
PACAGNELLA JÚNIOR ET AL.
 10991468, 2023, 2, Downloaded from https://onlinelibrary.wiley.com/doi/10.1002/mde.3722 by University Estadual De Campina, Wiley Online Library on [03/11/2023]. See the Terms and Conditions (https://onlinelibrary.wiley.com/terms-and-conditions) on Wiley Online Library for rules of use; OA articles are governed by the applicable Creative Commons License
938 PACAGNELLA JÚNIOR ET AL.

return efficiency, is project size. As can be seen, projects classified
as small (GHG < 16,000 ton-CO2/year), represented by Node
2, have a higher average efficiency than large projects, represented by
Node 1. For small projects, the average financial return efficiency
presented was 61.19%, while for the projects classified as large, it was
38.47%.
The second partition, made from each of the previous branches
(project size), presents three leaf nodes (a result that allows no further
partitioning), generated from the group of small projects in the sample,
and which is relative to the type of CDM project. In this case, the
CHAID algorithm clustered different project types at each node, with
p value < .000 and F statistic = 45,302. The leaf node with the
highest average financial return efficiency is Node 9, consisting of
64 projects of the landfill gas and methane avoidance types, with
79.36%. The second node with the highest average efficiency is Node
8, consisting of 82 projects of the biomass energy and EE supply side
types, with 70.78%. The third leaf node of the small projects partition,
in terms of financial return efficiency, is Node 7, made up of 617 pro-
jects of the wind, hydro, EE own generation, mixed renewables, and
solar types, with 58.033%.
The tree also presents a new partition for the projects classified
as large, with p value < .000 and F statistic = 108,032, with four other
leaf nodes (nodes 3, 4, 5, and 6), but all with lower average financial
return efficiency than nodes 7, 8, and 9, already presented. An
important aspect to highlight is that the tree shown in Figure 6
presented good classification power, with a risk of misclassification of
8.17%.
The projects allocated to nodes 7, 8, and 9, which stand out in
average efficiency, have other relevant characteristics to be explored.
Table 5 presents information about the regions and subregions of the
projects belonging to these nodes.
Table 5 shows that, in most of the projects in the three nodes
considered most efficient in financial return (7, 8, and 9), there is a
great preference of investors to carry out projects in Asia (572 projects
in Node 7, 77 in Node 8, and 59 in Node 9). Out of these projects,
most were carried out in the Eastern Asia region (310 projects in
Node 7, three in Node 8, and 22 in Node 9) and the Southern Asia
region (223 projects in Node 7, 59 in Node 8, and six in Node 9).
The second most sought-after region for CDM projects,
considering the three most efficient nodes in financial return, are the
Americas (39 projects in Node 7, five projects in Node 8, and two in
Node 9), although there is a much lower number of projects compared
with Asia. Among these projects, South America is the most sought
after for their realization (31 projects in Node 7, five in Node 8, but
none in Node 9). Furthermore, in Central America, eight projects
belong to Node 7 and two to Node 9. An important point to note is
that the tree obtained good classification power, presenting a
misclassification error of 8.17%.
Figure 7 below shows the environmental efficiency ranking tree
presented by the projects in the sample.
As can be seen in Figure 7, the root node (Node 0) represents the
entire sample of CDM projects, which have an average environmental
efficiency of 52.84%. From this node, there is a partition into two
branches, significant at 1% (p value < .0000 and F statistic = 132,032),
which generate two leaf nodes (nodes 1 and 2) and which, such as the
tree represented in Figure 6, classify the sample by the size of the
projects, with large projects having an average environmental
efficiency of 38.47% and small projects, 48.60%.
Two other tree partitions, the first from Node 1 (p value < .000
and F = 186,365) and the second from Node 2 (p value < .000 and
F = 45,302), divide the sample by type of CDM project; the ninth leaf
node stands out among the small projects, with an average environ-
mental efficiency of 85.49% (highest average efficiency in the nodes),
comprising projects in the landfill gas and methane avoidance catego-
ries. In the branch referring to large projects, it is possible to highlight
Node 6, with 64.97% of environmental efficiency, composed of the
categories landfill gas and coal bed/mine methane, and Node 5, with
56.61%, composed of the categories biomass energy, EE own genera-
tion, geothermal, EE supply side, fossil fuel switch, and fugitive.
As in the case of the first stage of the efficiency model, the tree
in Figure 7 also presented good classification power, showing a
misclassification error of only 5.65%.

TABLE 5 Clean Development Mechanism (CDM) distribution by continent and subregion considering financial return efficiency

Node 7 Node 8 Node 9 Node 7 Node 8 Node 9

Continent N % N % N % Subregion N % N % N %
Africa 5 0.81 0 0.00 1 1.56 Northern Africa 1 20.00 0 0.00 0 0.00
Southern Africa 1 20.00 0 0.00 1 100.00
Eastern Africa 3 60.00 0 0.00 0 0.00
Americas 39 6.32 5 6.10 2 3.13 South America 31 79.49 5 100.00 0 0.00
Central America 8 20.51 0 0.00 2 100.00
Asia 572 92.71 77 93.90 59 92.19 Southern Asia 223 38.99 59 76.62 6 10.17
Southeastern Asia 36 6.29 15 19.48 27 45.76
Western Asia 3 0.52 0 0.00 4 6.78
Eastern Asia 310 54.20 3 3.90 22 37.29
Oceania 1 0.16 0 0.00 2 3.13 Melanesia 1 100.00 0 0.00 2 3.39

Source: Elaborated by the authors.

 10991468, 2023, 2, Downloaded from https://onlinelibrary.wiley.com/doi/10.1002/mde.3722 by University Estadual De Campina, Wiley Online Library on [03/11/2023]. See the Terms and Conditions (https://onlinelibrary.wiley.com/terms-and-conditions) on Wiley Online Library for rules of use; OA articles are governed by the applicable Creative Commons License
PACAGNELLA JÚNIOR ET AL. 939

TABLE 6 Clean Development Mechanism (CDM) distribution by continent and subregion considering environmental efficiency

Node 5 Node 6 Node 9 Node 5 Node 6 Node 9

Continent N % N % N % Subregion N % N % N %
Africa 3 1.21 4 3.42 1 1.56 Southern Africa 1 0.40 0 3.42 1 1.56
Western Africa 1 0.40 0 0.85 0 0.00
Eastern Africa 1 0.40 4 0.00 0 0.00
Americas 20 8.06 22 18.80 2 3.13 Caribbean 1 0.40 1 8.55 0 0.00
South America 15 6.05 0 11.11 0 0.00
Central America 4 1.61 10 0.85 2 3.13
Asia 225 90.73 91 77.78 59 92.19 Southeastern Asia 13 5.24 13 1.71 27 42.19
Southern Asia 52 20.97 1 0.00 6 9.38
Western Asia 1 0.40 2 3.42 4 6.25
Eastern Asia 159 64.11 0 0.85 22 34.38
Oceania 0 0.00 0 0.00 2 3.13 Melanesia 0 0.00 0 0.00 2 3.13

Source: Elaborated by the authors.

Regarding the locations where the projects of the most efficient
nodes (5, 6, and 9) were carried out, Table 6 presents their
composition.
Table 6 shows that, just as in the case of the most efficient nodes
in terms of financial return, Asia was the most sought-after continent
for the CDM projects of the three most environmentally efficient
nodes (5, 6, and 9). In total, of the projects carried out on this
continent, 225 belong to Node 5, 91 to Node 6, and 59 to Node
9. Concerning the subregions, the eastern region stands out, with
159 projects belonging to Node 5 and 22 to Node 9, as well as the
southern region, with 52 projects in Node 5, one in Node 6, and six in
Node 9.
The second continent where there were the most projects from
these three nodes was the American continent, with 20 projects in
Node 5, 22 in Node 6, and two in Node 7. Regarding the subregions,
the node South America received more projects (15, belonging to
Node 5), followed by Central America (four in Node 5, 10 in Node
6, and two in Node 9).
The joint results of Figures 6 and 7, as well as Tables 5 and 6,
indicate a pattern between the most efficient CDM projects. First,
concerning financial return efficiency, the projects with the highest
average efficiency are small, those of the landfill gas and methane
avoidance type (closely followed by small projects of the biomass
energy and EE supply side types), and are mostly carried out in Asia,
more specifically in the eastern and southern regions.
Thus, by considering these results, it is possible to accept the first
proposed hypothesis:
• H1: There are CDM projects that are significantly more efficient in
terms of financial efficiency.
Concerning environmental efficiency, small projects of the landfill gas
and methane avoidance type also stand out (with the difference that,
in second place, are large projects of the landfill gas and coal
bed/mine methane type). Again, most of these projects were carried
out in Asia, with the eastern and southern eastern regions standing
out this time.
The results obtained for the second stage of the model also
allowed us to accept the second proposed hypothesis:
• H2: There are CDM projects that are significantly more efficient in
reducing GHGs.
These results indicate that carrying out these types of projects in
these areas can lead to a superior result in terms of financial return
and environmental impact, compared with the other projects in the
sample. This fact may be related to the low technical complexity and
low need for large investments in these types of projects (e.g., a
project that can be associated with these two types of CDMs may be
the collection and use of methane from solid waste for burning in
thermal power plants).
Furthermore, several countries in Asia have taken proactive initia-
tives to assess opportunities for new CDMs and have created promo-
tion policies. In some of these countries (e.g., Thailand and Vietnam),
there has been a shift in policies in the energy sector toward cleaner
energy matrices, with the replacement of fossil fuels and the increase
of renewables in the energy supply system, as well as measures to
increase efficiency and conservation.
It is important to highlight that CHAID results allow us to accept
both hypotheses with 1% of significance, since the branches in
classification trees concerning the most efficient CDM profiles, in
both stages of the DEA model, have p values lower than .01.
The results found in this study are in part aligned with those
found by Zhang et al. (2018), which, using a different efficiency
analysis model from the one used in this research, identified the
projects carried out in India and China as highlights in terms of energy
efficiency (which is similar with the second stage of the model used in
this study).
Other studies indicate dissonant results, such as Kim et al. (2022),
who pointed out biomass CDMs, carried out in Korea as being more

940
efficient in terms of financial returns and also Rahman and Kirkman
(2015), who highlighted the scale of these projects as being
determinant in its return, with large CDMs being more economically
attractive because they have lower relative costs compared to the
CERs generated.
However, it is necessary to emphasize that the model proposed
in this study is completely original, bringing a new proposal of analysis
that supports investment decisions in these projects, so it is difficult
to compare vis-a-vis the results found by this study with
previous ones.
7 | C O N CL U S I O N A ND P O LI C Y
IMPLICATIONS
This study aimed to analyze the efficiency of the CDM projects
carried out worldwide and understand their main characteristics,
support investment decisions in these projects, and to increase the
academic understanding of their financial return and environmental
contributions. To achieve this goal, we used a United Nations Climate
Change Commission (UNFCCC) database, which contains data on all
CDM projects developed globally. After verifying and processing the
data, a sample of 2352 valid projects was obtained and analyzed using
a two-stage DEA model, allowing the evaluation of their financial
return and environmental efficiency. From this point, we were able to
classify these two types of efficiency using the classification tree
technique with the CHAID algorithm, to characterize the groups of
more efficient projects regarding the types and the locations in which
they were executed.
Thus, we arrived at two conclusions. The first is that the
methodological proposal presented here, combining the two analysis
techniques mentioned above, produces important insights when
applied to the studied phenomenon, and, because it is original,
(to the best of our knowledge) it represents a relevant contribution of
this study.
The second conclusion stems from the results, in which we found
that the most efficient types of CDM projects in the sample, in terms
of financial return, are projects with small size, from the categories of
landfill gas and methane avoidance, followed by biomass energy, EE
supply side projects, and wind, hydro, EE own generation, mixed
renewables, and solar project types, and carried out preferentially in
the Eastern Asia and Southern Asia regions. The most efficient
projects in environmental terms are again small landfill gas and
methane avoidance projects, followed by large landfill gas and coal
bed/mine methane projects, and finally biomass energy, EE own
generation, geothermal, EE supply side, fossil fuel switch, and fugitive
projects. These projects were also mostly carried out in Asia, with the
eastern and southeastern regions standing out.
These results broaden the academic understanding of which
types of projects have the greatest potential for financial and environ-
mental impact, and which continents and regions, by their CDM
projects, have contributed most effectively to the sustainability of the
planet. Besides this, they can also support investment decisions,
10991468, 2023, 2, Downloaded from https://onlinelibrary.wiley.com/doi/10.1002/mde.3722 by University Estadual De Campina, Wiley Online Library on [03/11/2023]. See the Terms and Conditions (https://onlinelibrary.wiley.com/terms-and-conditions) on Wiley Online Library for rules of use; OA articles are governed by the applicable Creative Commons License
PACAGNELLA JÚNIOR ET AL.
complementing traditional financial indicators and offering a broader
vision for decision-makers, who can also include public managers in
the creation of policies to foster the realization of these projects in
order to promote economic returns to the investors and local govern-
ments, decreasing environmental impacts with GHGs reductions, and
also creating social benefits, since these projects generate a significant
number of jobs.
An important limitation that should be stressed about the
research is that the sample only considered the CDMs from the
UNFCCC database that had all the data filled in, and those with
missing data were suppressed. Although it was possible to perform
imputation in some cases, this procedure could affect the efficiency
rankings produced by the DEA model, so the choice fell to using only
projects with complete data.
In terms of further research, we suggest complementary studies
on the subject, to try to identify critical factors that influence financial
return and environmental efficiencies, such as aspects related to the
management of the project itself, economic incentives and policies, or
even technological capabilities and limitations for implementation of
all types of CDM projects.
DATA AVAILABILITY STAT EMEN T
The authors confirm that the data that support the findings of this
study are openly available at https://cdm.unfccc.int/.
OR CID
Antônio Carlos Pacagnella Júnior https://orcid.org/0000-0003-
4485-2777
RE FE RE NCE S
Amatayakul, W., & Berndes, G. (2012). Determining fact factors the
development of CDM biomass power projects. Energy for Sustainable
Development, 16(1), 197–203. https://doi.org/10.1016/j.esd.2012.
01.004
Benites-Lazaro, L. L., Gremaud, P. A., & Benites, L. A. (2018). Business
responsibility regarding climate change in Latin America: An empirical
analysis from clean development mechanism (CDM) project
developers. The Extractive Industries and Society, 5(2), 297–306.
https://doi.org/10.1016/j.exis.2018.02.011
Bostian, M., Färe, R., Grosskopf, S., & Lundgren, T. (2016). Environmental
investment and firm performance: A network approach. Energy
Economics, 57(1), 243–255. https://doi.org/10.1016/j.eneco.2016.
05.013
Bufoni, A. L., de Sousa Ferreira, A. C., & Oliveira, L. B. (2017).
Waste management CDM projects barriers NVivo 10® qualitative
dataset. Data in Brief, 15, 595–599. https://doi.org/10.1016/j.dib.
2017.10.014
Campisi, D., Mancuso, P., Mastrodonato, S. L., & Morea, D. (2019).
Efficiency assessment of knowledge intensive business services
industry in Italy: Data envelopment analysis (DEA) and financial ratio
analysis. Measuring Business Excellence, 23(4), 484–495. https://doi.
org/10.1108/MBE-09-2019-0095
Campisi, D., Mancuso, P., Mastrodonato, S. L., & Morea, D. (2021). Produc-
tivity dispersion in the Italian knowledge-intensive business services
(KIBS) industry: A multilevel analysis. Management Decision, 60(4)
940–952.
Carmichael, D. G., Ballouz, J. J., & Balatbat, M. C. A. (2015). Improving the
attractiveness of CDM projects through allowing and incorporating

PACAGNELLA JÚNIOR ET AL.
options. Energy Policy, 86(1), 784–791. https://doi.org/10.1016/j.
enpol.2015.08.024
Carmichael, D. G., Lea, K. A., & Balatbat, M. C. (2016). The financial
additionality and viability of CDM projects allowing for uncertainty.
Environment, Development and Sustainability, 18(1), 129–141. https://
doi.org/10.1007/s10668-015-9630-5
Chen, H., Letmathe, P., & Soderstrom, N. (2021). Reporting bias and moni-
toring in clean development mechanism projects. Contemporary
Accounting Research, 38(1), 7–31. https://doi.org/10.1111/1911-
3846.12609
Cormier, A., & Bellassen, V. (2013). The risks of CDM projects: How did
only 30% of expected credits come through? Energy Policy, 54,
173–183. https://doi.org/10.1016/j.enpol.2012.11.016
Cui, J., Liu, X., Sun, Y., & Yu, H. (2020). Can CDM projects trigger host
countries' innovation in renewable energy? Evidence of firm-level
dataset from China. Energy Policy, 139, 111349. https://doi.org/10.
1016/j.enpol.2020.111349
Díaz-Pérez, M. F., García-González, C. G., & Fyall, A. (2020). The use of the
CHAID algorithm for determining tourism segmentation: A purposeful
outcome. Heliyon, 6(7), 1–11. https://doi.org/10.1016/j.heliyon.2020.
e04256
Hultman, N. E., Pulver, S., Guimarães, L., Deshmukh, R., & Kane, J. (2012).
Carbon market risks and rewards: Firm perceptions of CDM invest-
ment decisions in Brazil and India. Energy Policy, 40(1), 90–102.
Iorio, C., Aria, M., D'Ambrosio, A., & Siciliano, R. (2019). Informative trees
by visual pruning. Expert Systems with Applications, 127(1), 228–240.
https://doi.org/10.1016/j.eswa.2019.03.018
Kao, C. (2014). Network data envelopment analysis: A review. European
Journal of Operations Research, 239(1), 1–16.
Keivani, E., Abbaspour, M., Abedi, Z., & Ahmadian, M. (2021). Promotion
of low-carbon economy through efficiency analysis: A case study of a
petrochemical plant. International Journal of Environmental Research,
15(1), 45–55. https://doi.org/10.1007/s41742-020-00282-1
Kim, J. H., Kim, T. H., & Lim, S. S. (2022). Determinants of investment costs
for CDM projects in the energy industry. Sustainability, 14(15), 9619.
https://doi.org/10.3390/su14159619
Koo, B. (2017). Examining the impacts of feed-in-tariff and the clean
development mechanism on Korea's renewable energy projects
through comparative investment analysis. Energy Policy, 104(1),
144–154. https://doi.org/10.1016/j.enpol.2017.01.017
Lam, P. T., Chan, E. H., Ann, T. W., Cam, W. C., & Jack, S. Y. (2015).
Applicability of clean development mechanism to the Hong Kong
building sector. Journal of Cleaner Production, 109, 271–283.
Li, Z., & Lin, B. (2021). What matters in the distributions of clean develop-
ment mechanism projects? A panel data approach. Environmental
Impact Assessment Review, 88, 106566. https://doi.org/10.1016/j.eiar.
2021.106566
Luo, B., Ye, D., & Wang, L. (2017). Recent progress on integrated energy
conversion and storage systems. Advanced Science, 4(9), 1700104.
Metz, B. (2013). The legacy of the Kyoto protocol: A view from the policy
world. Wiley Interdisciplinary Reviews-Climate Change, 4(3), 151–158.
https://doi.org/10.1002/wcc.216
Milanovic, M., & Stamenkovic, M. (2016). CHAID decision tree:
Methodological frame and application. Economic Themes, 54(4),
563–586. https://doi.org/10.1515/ethemes-2016-0029
Mohammed, S. D. (2019). Clean development mechanism and carbon
emissions in Nigeria. Sustainability Accounting, Management and Policy
Journal, 11(3), 523–551. https://doi.org/10.1108/SAMPJ-05-2017-
0041
Monteiro, L. S., Costa, K. A., Christo, E. D. S., & Freitas, W. K. (2021). Eco-
nomic feasibility analysis of small hydro power projects. International
Journal of Environmental Science and Technology, 18(6), 1653–1664.
Montini, M. (2014). Developing CDM projects in the Western Balkans: Legal
and technical issues compared. Springer.
10991468, 2023, 2, Downloaded from https://onlinelibrary.wiley.com/doi/10.1002/mde.3722 by University Estadual De Campina, Wiley Online Library on [03/11/2023]. See the Terms and Conditions (https://onlinelibrary.wiley.com/terms-and-conditions) on Wiley Online Library for rules of use; OA articles are governed by the applicable Creative Commons License
941
Okereke, C., Wittneben, B., & Bowen, F. (2012). Climate change: Challeng-
ing business. Transforming Politics, 51(1), 7–30. https://doi.org/10.
1177/0007650311427659
Pacagnella Junior, A. C., Hollaender, P. S., Mazzanati, G. V., &
Bortoletto, W. W. (2020). Infrastructure and flight consolidation
efficiency of public and private Brazilian international airports:
A two-stage DEA and Malmquist index approach. Journal of Advanced
Transportation, 2020(1), 1–15.
Paulsson, E. (2009). A review of the CDM literature: From fine-tuning to
critical scrutiny. International Environmental Agreements: Politics, Laws,
Economics, 9(1), 63–80. https://doi.org/10.1007/s10784-008-9088-0
Purohit, P. (2009). Economic potential of biomass gasification projects
under clean development mechanism in India. Journal of Cleaner Pro-
duction, 17, 181–193. https://doi.org/10.1016/j.jclepro.2008.04.004
Rahman, S. M., & Kirkman, G. A. (2015). Costs of certified emission reduc-
tions under the clean development mechanism of the Kyoto Protocol.
Energy Economics, 47, 129–141. https://doi.org/10.1016/j.eneco.
2014.10.020
Simon, N., Arimura, T. H., Morita, M., Kuriyama, A., & Koakutsu, K. (2017).
Technology transfer and cost structure of clean development mecha-
nism projects: An empirical study of Indian cases. Environmental Eco-
nomics and Policy Studies, 19(3), 609–633.
Song, M., Zhang, J., & Wang, S. (2015). Review of the network environ-
mental efficiencies of listed petroleum enterprises in China. Renewable
and Sustainable Energy Reviews, 43(1), 65–71. https://doi.org/10.
1016/j.rser.2014.11.050
Thaker, K., Charles, V., Pant, A., & Gherman, T. (2022). A DEA and random
forest regression approach to studying bank efficiency and corporate
governance. Journal of the Operational Research Society, 73(6), 1258–
1277. https://doi.org/10.1080/01605682.2021.1907239
Trotter, I. M., Cunha, D. A., & Féres, J. G. (2015). The relationships
between CDM project characteristics and CER market prices. Ecologi-
cal Economics, 119(1), 158–167. https://doi.org/10.1016/j.ecolecon.
2015.08.016
UNFCCC. (2015). The mechanisms under the Kyoto protocol: Emissions
trading, the clean development mechanism and joint implementation.
http://unfccc.int/kyoto_protocol/mechanisms/items/1673.php
UNFCCC. (2022). “Kyoto Protocol—Targets for the first commitment
period”, http://unfccc.int/kyoto_protocol/items/2830.php
UNFCCC. (2022a). “Project search: CDM project”. https://cdm.unfccc.int/
projects/projsearch.html.
Wu, P., Qiu, K., & Liou, J. (2017). Project cost comparison under the clean
development mechanism to inform investment selection by industrial-
ized countries. Journal of Cleaner Production, 166(10), 1347–1356.
https://doi.org/10.1016/j.jclepro.2017.08.090
Yoon, J. H., & Sim, K. H. (2015). Why is South Korea's renewable energy
policy failing? A qualitative evaluation. Energy Policy, 86, 369–379.
Zeng, S., Jiang, C., Ma, C., & Su, B. (2018). Investment efficiency of the
new energy industry in China. Energy Economics, 70(1), 536–544.
https://doi.org/10.1016/j.eneco.2017.12.023
Zhang, Y. J., Sun, Y. A., & Huang, J. (2018). Energy efficiency, carbon emis-
sion performance, and technology gaps: Evidence from CDM project
investment. Energy Policy, 115(1), 119–130. https://doi.org/10.1016/j.
enpol.2017.12.056
How to cite this article: Pacagnella Júnior, A. C., da Silva, H. L.,
Bortoletto, W. W., & de Arruda Ignacio, P. S. (2023). Financial
and environmental efficiency of CDM projects: Analysis and
classification for investment decisions. Managerial and Decision
Economics, 44(2), 926–941. https://doi.org/10.1002/mde.
3722