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Cooperation to Reduce Developing Country Emissions

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Author Info

  • Suzi Kerr

    ()
    (Motu Economic and Public Policy Research)

  • Adam Millard-Ball

    ()
    (McGill University)

Abstract

Without effective developing country participation in climate mitigation it will be impossible to meet global concentration and climate change targets. However, developing countries are unwilling and, in many cases, unable to bear the mitigation cost alone. They need huge transfers of resources – financial, knowledge, technology, and capability – from industrialised countries. In this paper, we evaluate instruments that can induce such resource transfers, including tradable credits, mitigation funds and results-based agreements. We identify key constraints that affect the efficiency and political potential of different instruments, including two-sided private information leading to adverse selection, moral hazard and challenging negotiations; incomplete contracts leading to under-investment; and high levels of uncertainty about emissions paths and mitigation potential. We consider evidence on the poor performance of current approaches to funding developing country mitigation – primarily purchasing offsets through the Clean Development Mechanism – and explore to what extent other approaches can address problems with offsets. We emphasise the wide spectrum of situations in developing countries and suggest that solutions also need to be differentiated and that no one policy will suffice: some policies will be complements, while others are substitutes. We conclude by identifying research needs and proposing a straw man to broaden the range of “contracting” options considered.

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Bibliographic Info

Paper provided by Motu Economic and Public Policy Research in its series Working Papers with number 12_03.

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Length: 39 pages
Date of creation: Mar 2012
Date of revision:
Handle: RePEc:mtu:wpaper:12_03

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Keywords: Climate; finance; cap and trade; CDM; clean development mechanism; developing countries; additionality; international agreements; Durban Platform;

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References

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  1. Strand, Jon, 2010. "Carbon offsets with endogenous environmental policy," Policy Research Working Paper Series 5296, The World Bank.
  2. David Popp, 2011. "International Technology Transfer, Climate Change, and the Clean Development Mechanism," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 5(1), pages 131-152, Winter.
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  13. Urvashi Narain & Klaas Veld, 2008. "The Clean Development Mechanism’s Low-hanging Fruit Problem: When Might it Arise, and How Might it be Solved?," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 40(3), pages 445-465, July.
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  15. Muller, Adrian, 2006. "How to Make the Clean Development Mechanism Sustainable - The Potential of Rent Extraction," Working Papers in Economics 214, University of Gothenburg, Department of Economics.
  16. Liu, Xuemei, 2008. "Rent extraction with a type-by-type scheme: An instrument to incorporate sustainable development into the CDM," Energy Policy, Elsevier, vol. 36(6), pages 1873-1878, June.
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  21. Heindl, Peter & Voigt, Sebastian, 2011. "A practical approach to offset permits in post Kyoto climate policy," ZEW Discussion Papers 11-043, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
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Cited by:
  1. Millard-Ball, Adam, 2013. "The trouble with voluntary emissions trading: Uncertainty and adverse selection in sectoral crediting programs☆☆Special thanks to Suzi Kerr, Lawrence Goulder, Michael Wara, Arthur van Benthem, Lee," Journal of Environmental Economics and Management, Elsevier, vol. 65(1), pages 40-55.

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