Adoption of climate change response options generates not only global carbon-saving benefits but also local externalities, here denominated as secondary benefits. So far funding for global warming response options, such as GEF, has discriminated against secondary benefits (SD) in their project analysis. SD, in this context, are benefits not specifically related to climate change which are locally captured. Projects in this way are ranked taking into account secondary benefits. Much of the discussion in the literature was on how many of these benefits should be deducted from funds of global warming control efforts since recipient countries would gain other benefits while reducing incremental costs. With new Clean Development Mechanism (CDM), it is expected that high SDs, reflected by national priorities, will be generated together with low carbon-saving costs. This study is devoted to analyse the national priorities in Brazil and their importance to define climate change response options in the country. First it presents an overview of national priorities reflected in public opinion polls, sectoral surveys and governmental investment programs followed by an analysis of biodiversity, forest and climate change issues in Brazil and their relevant policy initiatives. Next it discusses specifically the new clean development mechanism (CDM) which has emerged from the Climate Change Convention as an integrating device for local and global issues. Finally, based on a recent study by Seroa da Motta, Young and Ferraz (1998), it is analysed how far can CDM go in this integration challenge for the case of Brazil, raising issues of possible governmental approaches to deal with these integration matters. The analysis shows that market forces alone will not be able to select CDM options which have, at the same time, high private cost-effectiveness and positive linkages to ecological and social benefits. For this purpose, the government may try to regulate private agent access to CDM market to orient them to select socially desirable CDM options. However, it is shown that such regulation approach is not easy to carry out and there is no guarantee that government intervention will assure welfare maximisation due to high transaction costs which may emerge from policy failures.

Therefore, the choice of the governmental approach to integrate global and national issues will be crucial to make the CDM an effective instrument of sustainable development.