Project Mechanisms and Technology Diffusion in Climate Policy
The paper deals with the diffusion of GHG mitigation technologies in developing countries. We develop a model where an abatement technology is progressively adopted by firms and we use it to compare the Clean Development Mechanism (CDM) with a standard Cap and Trade scheme (C&T). In the presence of learning spillovers, we show that the CDM yields a higher social welfare than C&T if the first adopter receives CDM credits whereas the followers do not. The analysis leads us to suggest two CDM design improvements: relaxing the additionality constraint for projects which generate significant learning externalities, and allowing collective CDM projects which could internalize learning externalities.
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Volume (Year): 49 (2011)
Issue (Month): 3 (July)
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