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Project-Based Mechanisms for Emissions Reductions: Balancing Trade-offs with Baselines

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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, 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.

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Bibliographic Info

Paper provided by Resources For the Future in its series Discussion Papers with number dp-04-32.

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Date of creation: 23 Aug 2004
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Handle: RePEc:rff:dpaper:dp-04-32

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Keywords: climate policy; Clean Development Mechanism; baselines; asymmetric information; offsets; emissions reduction; tradable emissions permits;

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  1. 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.
  2. 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.
  3. Fischer, Carolyn, 2003. "Combining Rate-Based and Cap-and-Trade Emissions Policies," Discussion Papers dp-03-32, Resources For the Future.
  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. Fischer, Carolyn & Bernard, Alain & Vielle, Marc, 2001. "Is There a Rationale for Rebating Environmental Levies?," Discussion Papers dp-01-31-, Resources For the Future.
  6. Josef Janssen, 1999. "(Self-) Enforcement of Joint Implementation and Clean Development Mechanism Contracts," Working Papers 1999.14, Fondazione Eni Enrico Mattei.
  7. 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, December.
  8. Baumol,William J. & Oates,Wallace E., 1988. "The Theory of Environmental Policy," Cambridge Books, Cambridge University Press, number 9780521311120.
  9. Gersbach, Hans & Requate, Till, 2004. "Emission taxes and optimal refunding schemes," Journal of Public Economics, Elsevier, vol. 88(3-4), pages 713-725, March.
  10. Baumol,William J. & Oates,Wallace E., 1988. "The Theory of Environmental Policy," Cambridge Books, Cambridge University Press, number 9780521322249.
  11. 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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