Project-Based Mechanisms for Emissions Reductions: Balancing Trade-offs with Baselines
AbstractProject-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, so it will not occur without sufficient credits. Evaluating reductions requires assigning an emissions 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, and 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 benchmarking emissions 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, an average industry emissions standard, and expected emissions.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Resources For the Future in its series Discussion Papers with number dp-04-32.
Date of creation: 23 Aug 2004
Date of revision:
climate policy; Clean Development Mechanism; baselines; asymmetric information; offsets; emissions reduction; tradable emissions permits;
Other versions of this item:
- Fischer, Carolyn, 2005. "Project-based mechanisms for emissions reductions: balancing trade-offs with baselines," Energy Policy, Elsevier, vol. 33(14), pages 1807-1823, September.
- D8 - Microeconomics - - Information, Knowledge, and Uncertainty
- Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-01-24 (All new papers)
- NEP-ENE-2006-01-24 (Energy Economics)
- NEP-ENV-2006-01-24 (Environmental Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Baumol,William J. & Oates,Wallace E., 1988. "The Theory of Environmental Policy," Cambridge Books, Cambridge University Press, number 9780521311120, October.
- 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.
- Jean-Jacques Laffont & Jean Tirole, 1993. "A Theory of Incentives in Procurement and Regulation," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262121743, June.
- Josef Janssen, 1999. "(Self-) Enforcement of Joint Implementation and Clean Development Mechanism Contracts," Working Papers 1999.14, Fondazione Eni Enrico Mattei.
- Fischer, Carolyn & Bernard, Alain & Vielle, Marc, 2001. "Is There a Rationale for Rebating Environmental Levies?," Discussion Papers dp-01-31-, Resources For the Future.
- Fischer, Carolyn, 2003. "Combining Rate-Based and Cap-and-Trade Emissions Policies," Discussion Papers dp-03-32, Resources For the Future.
- Baumol,William J. & Oates,Wallace E., 1988. "The Theory of Environmental Policy," Cambridge Books, Cambridge University Press, number 9780521322249, October.
- 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.
- Fischer, Carolyn, 2001. "Rebating Environmental Policy Revenues: Output-Based Allocations and Tradable Performance Standards," Discussion Papers dp-01-22, Resources For the Future.
- 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.
- Gersbach, Hans & Requate, Till, 2004. "Emission taxes and optimal refunding schemes," Journal of Public Economics, Elsevier, vol. 88(3-4), pages 713-725, March.
- Passey, Robert & MacGill, Iain & Outhred, Hugh, 2008. "The governance challenge for implementing effective market-based climate policies: A case study of The New South Wales Greenhouse Gas Reduction Scheme," Energy Policy, Elsevier, vol. 36(8), pages 2999-3008, August.
- Emma Paulsson, 2009. "A review of the CDM literature: from fine-tuning to critical scrutiny?," International Environmental Agreements: Politics, Law and Economics, Springer, vol. 9(1), pages 63-80, February.
- Strand, Jon, 2011.
"Carbon offsets with endogenous environmental policy,"
Elsevier, vol. 33(2), pages 371-378, March.
- Strand, Jon, 2010. "Carbon offsets with endogenous environmental policy," Policy Research Working Paper Series 5296, The World Bank.
- Knut Einar Rosendahl & Jon Strand, 2012.
"Emissions trading with offset markets and free quota allocations,"
719, Research Department of Statistics Norway.
- Rosendahl, Knut Einar & Strand, Jon, 2012. "Emissions trading with offset markets and free quota allocations," Policy Research Working Paper Series 6281, The World Bank.
- Cathrine Hagem, 2007. "The clean development mechanism versus international permit trading: the effect on technological change," Discussion Papers 521, Research Department of Statistics Norway.
- 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.
- Johan Eyckmans & Cathrine Hagem, 2009. "The European Union's Potential for Strategic Emissions Trading through Minimal Permit Sale Contracts," CESifo Working Paper Series 2809, CESifo Group Munich.
- Lohmann, Larry, 2009. "Toward a different debate in environmental accounting: The cases of carbon and cost-benefit," Accounting, Organizations and Society, Elsevier, vol. 34(3-4), pages 499-534, April.
- Johan Eyckmans & Cathrine Hagem, 2008.
"The European Union’s potential for strategic emissions trading in a post-Kyoto climate agreement,"
530, Research Department of Statistics Norway.
- Eyckmans, Johan & Hagem, C., 2008. "The European Union’s potential for strategic emissions trading in a post-Kyoto climate agreement," Open Access publications from Katholieke Universiteit Leuven urn:hdl:123456789/230902, Katholieke Universiteit Leuven.
- Eyckmans, Johan & Hagem, Cathrine, 2008. "The European Union's potential for strategic emissions trading in a post-Kyoto climate agreement," Working Papers 2008/13, Hogeschool-Universiteit Brussel, Faculteit Economie en Management.
- Goulder, Lawrence H. & Pizer, William A., 2006.
"The Economics of Climate Change,"
dp-06-06, Resources For the Future.
- Partridge, Ian & Gamkhar, Shama, 2010. "The role of offsets in a post-Kyoto climate agreement: The power sector in China," Energy Policy, Elsevier, vol. 38(8), pages 4457-4466, August.
- Zhang, Junjie & Wang, Can, 2011. "Co-benefits and additionality of the clean development mechanism: An empirical analysis," Journal of Environmental Economics and Management, Elsevier, vol. 62(2), pages 140-154, September.
- 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.
- 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.
- Pizer, William A., 2006. "Economics versus Climate Change," Discussion Papers dp-06-04, Resources For the Future.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Webmaster).
If references are entirely missing, you can add them using this form.