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Joint Implementation: Strategic Reactions and Possible Remedies

  • Franz Wirl
  • Claus Huber
  • I.O Walker

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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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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  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. Heintz, Roebyem J & Tol, Richard SJ, 1995. "Joint implementation and uniform mixing," Energy Policy, Elsevier, vol. 23(10), pages 911-917, October.
  3. John P. Weyant, 1993. "Costs of Reducing Global Carbon Emissions," Journal of Economic Perspectives, American Economic Association, vol. 7(4), pages 27-46, Fall.
  4. 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, June.
  5. Hoel, M., 1993. "Efficient Climate Policy in the Presence of Free Riders," Memorandum 04/1993, Oslo University, Department of Economics.
  6. 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.
  7. 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.
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