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Joint Implementation: Strategic Reactions and Possible Remedies

Author

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  • Franz Wirl
  • Claus Huber
  • I.O Walker

Abstract

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

Suggested Citation

  • Franz Wirl & Claus Huber & I.O Walker, 1998. "Joint Implementation: Strategic Reactions and Possible Remedies," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 12(2), pages 203-224, September.
  • Handle: RePEc:kap:enreec:v:12:y:1998:i:2:p:203-224
    DOI: 10.1023/A:1008272620797
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    References listed on IDEAS

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    1. 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.
    2. John P. Weyant, 1993. "Costs of Reducing Global Carbon Emissions," Journal of Economic Perspectives, American Economic Association, vol. 7(4), pages 27-46, Fall.
    3. Michael Hoel & Kerstin Schneider, 1997. "Incentives to participate in an international environmental agreement," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 9(2), pages 153-170, March.
    4. Hoel Michael, 1994. "Efficient Climate Policy in the Presence of Free Riders," Journal of Environmental Economics and Management, Elsevier, vol. 27(3), pages 259-274, November.
    5. Heintz, Roebyem J & Tol, Richard SJ, 1995. "Joint implementation and uniform mixing," Energy Policy, Elsevier, vol. 23(10), pages 911-917, October.
    6. Tahvonen, Olli, 1994. "Carbon dioxide abatement as a differential game," European Journal of Political Economy, Elsevier, vol. 10(4), pages 685-705, December.
    7. 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.
    8. Wirl, Franz, 1996. "Can Leviathan Governments Mitigate the Tragedy of the Commons?," Public Choice, Springer, vol. 87(3-4), pages 363-377, June.
    9. Cathrine Hagem, 1996. "Joint implementation under asymmetric information and strategic behavior," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 8(4), pages 431-447, December.
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    Citations

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    Cited by:

    1. Axel Michaelowa & Emmanuel Fages, 1999. "Options for baselines of the clean development mechanism," Mitigation and Adaptation Strategies for Global Change, Springer, vol. 4(2), pages 167-185, June.
    2. Christoph Böhringer & Andreas Löschel, 2008. "Climate Policy-induced Investments in Developing Countries: The Implications of Investment Risks," The World Economy, Wiley Blackwell, vol. 31(3), pages 367-392, March.
    3. 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.
    4. Knut Rosendahl & Jon Strand, 2015. "Emissions Trading with Offset Markets and Free Quota Allocations," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 61(2), pages 243-271, June.
    5. Fischer, Carolyn, 2002. "Determining Project-Based Emissions Baselines with Incomplete Information," Discussion Papers dp-02-23, Resources For the Future.
    6. Norimichi Matsueda, 2002. "Asymmetrical information and delay of a side payment in unidirectional transboundary pollution," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 5(3), pages 229-247, September.
    7. Strand, Jon, 2013. "Strategic climate policy with offsets and incomplete abatement: Carbon taxes versus cap-and-trade," Journal of Environmental Economics and Management, Elsevier, vol. 66(2), pages 202-218.
    8. Suzi Kerr & Catherine Leining, 2003. "Joint Implementation in Climate Change Policy," Working Papers 03_04, Motu Economic and Public Policy Research.
    9. Liu, Xuemei, 2008. "The monetary compensation mechanism: An alternative to the clean development mechanism," Ecological Economics, Elsevier, vol. 66(2-3), pages 289-297, June.
    10. Matti Liski & Juha Virrankoski, 2004. "Frictions in Project-Based Supply of Permits," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 28(3), pages 347-365, July.
    11. repec:eee:resene:v:51:y:2018:i:c:p:1-17 is not listed on IDEAS
    12. Franz Wirl & Juergen Noll, 2008. "Abatement and Permits when Pollution is Uncertain and Violations are Fined," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 40(2), pages 299-312, June.
    13. Peter Bohm, 2002. "Improving Cost-effectiveness and Facilitating Participation of Developing Countries in International Emissions Trading," International Environmental Agreements: Politics, Law and Economics, Springer, vol. 2(3), pages 261-273, September.
    14. Chiroleu-Assouline, Mireille & Poudou, Jean-Christophe & Roussel, Sébastien, 2018. "Designing REDD+ contracts to resolve additionality issues," Resource and Energy Economics, Elsevier, vol. 51(C), pages 1-17.
    15. 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.
    16. Schwarze, Reimund, 2000. "Activities implemented jointly: another look at the facts," Ecological Economics, Elsevier, vol. 32(2), pages 255-267, February.

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