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Determining Project-Based Emissions Baselines with Incomplete Information

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  • Fischer, Carolyn

    ()
    (Resources for the Future)

Abstract

Project-based mechanisms for emissions reductions credits, like the Clean Development Mechanism, pose important challenges for policy design because of several inherent characteristics. Participation is voluntary. Evaluating reductions requires assigning a baseline for a counterfactual that cannot be measured. Some investments have both economic and environmental benefits and might occur anyway. Uncertainty surrounds both emissions and investment returns. Parties to the project are likely to have more information than the certifying authority. The certifying agent is limited in its ability to design a contract that would reveal investment intentions. As a result, rules for baseline determination may be systematically biased to overallocate, and they also risk creating inefficient investment incentives. This paper evaluates, in a situation with asymmetric information, the efficacy of the main baseline rules currently under consideration: historical emissions, average industry emissions, and expected emissions.

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Bibliographic Info

Paper provided by Resources For the Future in its series Discussion Papers with number dp-02-23.

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Date of creation: 13 May 2002
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Handle: RePEc:rff:dpaper:dp-02-23

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Keywords: climate policy; Clean Development Mechanism; baseline emissions; asymmetric information;

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References

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  1. Josef Janssen, 1999. "(Self-) Enforcement of Joint Implementation and Clean Development Mechanism Contracts," Working Papers 1999.14, Fondazione Eni Enrico Mattei.
  2. Franz Wirl & Claus Huber & I.O Walker, 1998. "Joint Implementation: Strategic Reactions and Possible Remedies," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 12(2), pages 203-224, September.
  3. Loeb, Martin & Magat, Wesley A, 1979. "A Decentralized Method for Utility Regulation," Journal of Law and Economics, University of Chicago Press, vol. 22(2), pages 399-404, October.
  4. Babu, P. G. & Saha, Bibhas, 1996. "Efficient emission reduction through joint implementation," Environment and Development Economics, Cambridge University Press, vol. 1(04), pages 445-464, October.
  5. Cathrine Hagem, 1996. "Joint implementation under asymmetric information and strategic behavior," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 8(4), pages 431-447, December.
  6. Fischer, Carolyn & Bernard, Alain & Vielle, Marc, 2001. "Is There a Rationale for Rebating Environmental Levies?," Discussion Papers dp-01-31-, Resources For the Future.
  7. Fischer, Carolyn, 2001. "Rebating Environmental Policy Revenues: Output-Based Allocations and Tradable Performance Standards," Discussion Papers dp-01-22, Resources For the Future.
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Cited by:
  1. Suzi Kerr & Catherine Leining, 2003. "Joint Implementation in Climate Change Policy," Working Papers 03_04, Motu Economic and Public Policy Research.

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