Int. J. Global Environmental Issues, Vol. 13, No. 1, 2013 25 Copyright © 2013 Inderscience Enterprises Ltd. Why only few CDM projects? The case of reforestation projects and remote sensing Urs Steiner Brandt* University of Southern Denmark, Niels Bohrs Vej 9 – 10, DK-6700 Esbjerg, Denmark E-mail: usb@sam.sdu.dk *Corresponding author Gert Tinggaard Svendsen Department of Political Science, Aarhus University, Bartholins Allé 7, 8000 Aarhus C, Denmark E-mail: gts@ps.au.dk Abstract: CDM projects have large potentials but also face significant obstacles that have so far limited their applicability. Two serious problems that an effective contracting faces are the presence of private information and the lack of sufficiently precise output measures. In a principal-agent framework, where local landowners are the agents and have private information about their costs, we analyse the implication of being able to condition payments to the agent based on observed output and therefore can offer a differentiated contract. This is compared with a situation where only a uniform payment structure is feasible. In the case of reforestation projects, and with respect to both economic and sustainability criteria, our model point to that a differentiated payment structure based on output due to remote sensing is superior to a uniform contract. Keywords: clean development mechanism; CDM; REDD; greenhouse gas; GHG; reforestation; sustainability; principal-agent; private information. Reference to this paper should be made as follows: Brandt, U.S. and Svendsen, G.T. (2013) ‘Why only few CDM projects? The case of reforestation projects and remote sensing’, Int. J. Global Environmental Issues, Vol. 13, No. 1, pp.25–42. Biographical notes: Urs Steiner Brandt is an Associate Professor at the University of Southern Denmark. He holds a Master degree in Economics from Aarhus University and has taken his PhD at Aarhus School of Business in 1999 in Applied Environmental Economics. He has published several papers concerning economic and strategic aspects of international climate agreements. He has, moreover, also published papers about evaluating policy instruments, in particular tradable permits for international pollution problems. A new field of research is to describe/identify and analyse how risk perception affects the possibility of effective climate agreements.