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A Cost-effective Approach to Attracting Low-income Countries to International Emissions Trading: Theory and Experiments

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  • Peter Bohm
  • Björn Carlén

Abstract

The cost-effectiveness of the KyotoProtocol and any similar non-global treatywould be enhanced by attracting additionalcountries to international emissions tradingand achieving this as soon as possible. Incontrast to what is heard in most of thedebate, such an enlargement is here taken to beattained with the new participants, atleast to begin with, being fullycompensated. This paper focuses on twoforms of compensation that can be used toattract poor countries to participate inemissions trading. The theoretical aswell as experimental evidence suggests that, ifpoor countries are more risk averse than richcountries, partial compensation in terms offinancial transfers is more cost-effective thanrelying solely on compensation in kind –emission quotas – as has been the case so far.Using money for partial compensation would alsoreduce the risk for ``hot air'' allocations andthe ensuing political obstacles tocost-effectiveness that such allocations tendto create. Copyright Kluwer Academic Publishers 2002

Suggested Citation

  • Peter Bohm & Björn Carlén, 2002. "A Cost-effective Approach to Attracting Low-income Countries to International Emissions Trading: Theory and Experiments," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 23(2), pages 187-211, October.
  • Handle: RePEc:kap:enreec:v:23:y:2002:i:2:p:187-211
    DOI: 10.1023/A:1021207617800
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    References listed on IDEAS

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    1. Montgomery, W. David, 1972. "Markets in licenses and efficient pollution control programs," Journal of Economic Theory, Elsevier, vol. 5(3), pages 395-418, December.
    2. Peter Bohm & Bjorn Larsen, 1994. "Fairness in a tradeable-permit treaty for carbon emissions reductions in Europe and the former Soviet Union," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 4(3), pages 219-239, June.
    3. Hoel, Michael, 2011. "Environmental R&D," Memorandum 12/2010, Oslo University, Department of Economics.
    4. Newbery, David M, 1989. "The Theory of Food Price Stabilisation," Economic Journal, Royal Economic Society, vol. 99(398), pages 1065-1082, December.
    5. Bohm, Peter & Carlen, Bjorn, 1999. "Emission quota trade among the few: laboratory evidence of joint implementation among committed countries," Resource and Energy Economics, Elsevier, vol. 21(1), pages 43-66, January.
    6. Adam Rose & Brandt Stevens, 2001. "An Economic Analysis of Flexible Permit Trading in the Kyoto Protocol," International Environmental Agreements: Politics, Law and Economics, Springer, vol. 1(2), pages 219-242, April.
    7. Fukuda, Shin-ichi & Hoshi, Takeo & Ito, Takatoshi & Rose, Andrew, 2006. "International Finance," Journal of the Japanese and International Economies, Elsevier, vol. 20(4), pages 455-458, December.
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    Cited by:

    1. Frank Jotzo & John C. V. Pezzey, 2006. "Optimal Intensity Targets for Greenhouse Emissions Trading Under Uncertainty," Economics and Environment Network Working Papers 0605, Australian National University, Economics and Environment Network.
    2. Hasson, Reviva & Löfgren, Åsa & Visser, Martine, 2010. "Climate change in a public goods game: Investment decision in mitigation versus adaptation," Ecological Economics, Elsevier, vol. 70(2), pages 331-338, December.
    3. Bohm, Peter, 2003. "Experimental evaluations of policy instruments," Handbook of Environmental Economics, in: K. G. Mäler & J. R. Vincent (ed.),Handbook of Environmental Economics, edition 1, volume 1, chapter 10, pages 437-460, Elsevier.
    4. Klaassen, Ger & Nentjes, Andries & Smith, Mark, 2005. "Testing the theory of emissions trading: Experimental evidence on alternative mechanisms for global carbon trading," Ecological Economics, Elsevier, vol. 53(1), pages 47-58, April.
    5. Frank Jotzo & John C. V. Pezzey, 2005. "Optimal intensity targets for emissions trading under uncertainty (now replaced by EEN0605)," Economics and Environment Network Working Papers 0504, Australian National University, Economics and Environment Network.
    6. John C. V. Pezzey & Frank Jotzo, 2006. "Mechanisms for Abating Global Emissions Under Uncertainty," Economics and Environment Network Working Papers 0604, Australian National University, Economics and Environment Network.
    7. Markandya, Anil, 2011. "Equity and Distributional Implications of Climate Change," World Development, Elsevier, vol. 39(6), pages 1051-1060, June.

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