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The Clean Development Mechanism (CDM) was created to compensate
underdeveloped countries for their contribution to mitigate climate change. Under
these rules, those projects showing the lower cost, in terms of investment, for each
tonne of CO2 (e) saved, will be the ones selected. However, even if this selection
process seems quite rational, it can result in a suboptimal allocation of resources,
when other impacts of these projects, also having to do with social welfare, are
considered. This point is illustrated in this paper by comparing the financial cost of CER
credits of two current CDM projects in Chile, the Santa Marta Landfill Gas Capture
Project and the Corneche, Los Guindos Methane Capture from Swine Manure Project,
with that of a third,virtual project, the upgrading of the Renca Generation Plant in
Santiago de Chile to a gas fired combined cycle (CCGT) Plant. Even if this third project is
much less efficient in financial terms, it shows a very important ancillary benefit: its
impact on human health. When this impact is introduced, the result, as expected, is a
drastic change in the relative social profitability of the three projects.
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