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Joint Implementation: Strategic Reactions and Possible Remedies

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Author Info

  • Franz Wirl
  • Claus Huber
  • I.O Walker

Abstract

This paper investigates the promising proposal of Joint Implementation (JI) to mitigate greenhouse gas emissions. This was ultimately the only concrete outcome of the Conference on Climate Change in Berlin, albeit restricted to a pilot phase. The basic idea, given the public's awareness of global warming, sounds economically plausible: The industrialized countries, the only ones required to stabilize and lower carbon emissions, can search for cheaper reductions of greenhouse gas emissions in developing countries and economies in transition. However, this proposal leads to strategic reactions by developing countries reinforced by the fact that this cheating coincides with the interest of the industrialized country. In short, this proposal will lead to cheating (given asymmetric information) and will thus produce largely faked reductions in emissions. On the constructive side, an efficient mechanism retaining the spirit of JI is derived, which deters strategic reactions. This differs from a usual principal-agent problem through an additional hierarchical layer: a global authority (e.g. the Conference of Parties on Climate Change), an industrialized country and a developing country. The unavoidable loss that is even associated with an optimal scheme due to strategic, behavioural reality (the first best optimum is unattainable, except at the top) leads, of course, to much less glamorous predictions in emission reductions. Moreover, the implicit subsidization scheme focuses and favours on already 'efficient' partners. Copyright Kluwer Academic Publishers 1998

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File URL: http://hdl.handle.net/10.1023/A:1008272620797
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Bibliographic Info

Article provided by European Association of Environmental and Resource Economists in its journal Environmental and Resource Economics.

Volume (Year): 12 (1998)
Issue (Month): 2 (September)
Pages: 203-224

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Handle: RePEc:kap:enreec:v:12:y:1998:i:2:p:203-224

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Web page: http://www.springerlink.com/link.asp?id=100263

Related research

Keywords: asymmetric information; global warming; joint implementation; optimal incentives; strategic reactions;

References

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  1. Wirl, Franz, 1996. " Can Leviathan Governments Mitigate the Tragedy of the Commons?," Public Choice, Springer, vol. 87(3-4), pages 363-77, June.
  2. Hoel Michael, 1994. "Efficient Climate Policy in the Presence of Free Riders," Journal of Environmental Economics and Management, Elsevier, vol. 27(3), pages 259-274, November.
  3. Michael Hoel & Kerstin Schneider, 1997. "Incentives to participate in an international environmental agreement," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 9(2), pages 153-170, March.
  4. Jackson, Tim, 1995. "Joint implementation and cost-effectiveness under the Framework Convention on Climate Change," Energy Policy, Elsevier, vol. 23(2), pages 117-138, February.
  5. Alan Manne & Richard Richels, 1992. "Buying Greenhouse Insurance: The Economic Costs of CO2 Emission Limits," MIT Press Books, The MIT Press, edition 1, volume 1, number 026213280x, January.
  6. John P. Weyant, 1993. "Costs of Reducing Global Carbon Emissions," Journal of Economic Perspectives, American Economic Association, vol. 7(4), pages 27-46, Fall.
  7. Heintz, Roebyem J & Tol, Richard SJ, 1995. "Joint implementation and uniform mixing," Energy Policy, Elsevier, vol. 23(10), pages 911-917, October.
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Citations

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Cited by:
  1. Knut Einar Rosendahl & Jon Strand, 2014. "Emissions Trading with Offset Markets and Free Quota Allocations," CESifo Working Paper Series 4603, CESifo Group Munich.
  2. Liu, Xuemei, 2008. "The monetary compensation mechanism: An alternative to the clean development mechanism," Ecological Economics, Elsevier, vol. 66(2-3), pages 289-297, June.
  3. Matti Liski & Juha Virrankoski, 2004. "Frictions in Project-Based Supply of Permits," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 28(3), pages 347-365, July.
  4. Peter Bohm, 2002. "Improving Cost-effectiveness and Facilitating Participation of Developing Countries in International Emissions Trading," International Environmental Agreements: Politics, Law and Economics, Springer, vol. 2(3), pages 261-273, September.
  5. Franz Wirl & Juergen Noll, 2008. "Abatement and Permits when Pollution is Uncertain and Violations are Fined," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 40(2), pages 299-312, June.
  6. Hagem, Cathrine, 2009. "The clean development mechanism versus international permit trading: The effect on technological change," Resource and Energy Economics, Elsevier, vol. 31(1), pages 1-12, January.
  7. Schwarze, Reimund, 2000. "Activities implemented jointly: another look at the facts," Ecological Economics, Elsevier, vol. 32(2), pages 255-267, February.
  8. Strand, Jon & Rosendahl, Knut Einar, 2012. "Global emissions effects of CDM projects with relative baselines," Resource and Energy Economics, Elsevier, vol. 34(4), pages 533-548.
  9. Cathrine Hagem, 2007. "The clean development mechanism versus international permit trading: the effect on technological change," Discussion Papers 521, Research Department of Statistics Norway.
  10. Böhringer, Christoph & Löschel, Andreas, 2002. "Climate policy induced investments in developing countries: the implications of investment risks," ZEW Discussion Papers 02-68, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  11. Suzi Kerr & Catherine Leining, 2003. "Joint Implementation in Climate Change Policy," Working Papers 03_04, Motu Economic and Public Policy Research.
  12. Fischer, Carolyn, 2002. "Determining Project-Based Emissions Baselines with Incomplete Information," Discussion Papers dp-02-23, Resources For the Future.
  13. Axel Michaelowa & Emmanuel Fages, 1999. "Options for baselines of the clean development mechanism," Mitigation and Adaptation Strategies for Global Change, Springer, vol. 4(2), pages 167-185, June.

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