The best way to make it work would be to offer direct incentives whereby the upfront project cost is subsidized by amount of expected CDM improvement I have been recently advising a major corporate entity in the process of developing a 1200MW coal based power project. They were least interested in incorporating the ultra super critical technology because they would not accept an up front additional investment and then try reclaim over the life of project. Since they dont have any legal obligation to induct he latest technology, they would rather do without it.

The mechanisim of benefiting from CDM is limited to only very large entities in developing countiries and we need to invest in briniging the concept closer to general public. At the present scenario of regular power outage, the people seem to be least concerned about environment and climate change issue and we need to seriously work on this.

1. It acts as a discriminating monopsonist, capturing the technology-differential producers’ surplus.

2. With technology-specific transactions, it is likely to have much lower contracting and compliance-monitoring costs.

3. The a priori technology-specific allocation of funds moves the “additionality-asssement” mechanism from the project level to the technology level, where it will be more efficient, more transparent, and less subject to self-serving bias.

This requires each country to collect revenue = CP * emissions. The EU can of course keep its cap & trade, they just have to make sure permit prices stay high enough to collect enough revenue. A sliding scale for P based on tons C/capita will address fairness. That leave the price non-uniform, but there’s a simple trading/enforcement mechanism to largely fix that, and in any case the EU’s carbon price is non-uniform between coal and oil by about a factor of 10, as explained here recently.

There’s another inherent problem with buying permits / offsets. Their cost is about double the cost of compliance because they are priced at the marginal cost of compliance. (In practice it’s been far worse). Trading tax rates solves this problem, and allows developed countries to get far more for their dollar spent on reducing developing country emissions.