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Pareto Improvements Induced by Climate Funding in a Strategic Adaptation-Mitigation Framework

In: Climate Finance Theory and Practice

Author

Listed:
  • Wolfgang Peters
  • Reimund Schwarze
  • Anna-Katharina Topp

Abstract

We address the international regime of climate finance, which is emerging in the post-Kyoto architecture, and investigate which type of earmarked funding may lead to Pareto improvements for donor and recipient countries. As funding within the post-Kyoto framework is voluntary, sustained finance in the long term can only be guaranteed if all participating countries benefit. In order to rule out for the Bergstrom paradox, which states that recipient countries may end up in a worse-off situation as a consequence of conditional transfers, we presume a framework in which donor countries commit themselves not to reduce their own mitigation efforts. Regarding three types of earmarked climate funding, which compensate either mitigation, adaptation or damage costs, we find that only funds that are directed at mitigation activities boost the global level of mitigation and may induce Pareto improvements. Transferring our results into the political context of the Green Climate Fund, we recommend to prioritize finance of “energy generation and access”, which aims at enhancing mitigation through low-emission power generation and access.

Suggested Citation

  • Wolfgang Peters & Reimund Schwarze & Anna-Katharina Topp, 2017. "Pareto Improvements Induced by Climate Funding in a Strategic Adaptation-Mitigation Framework," World Scientific Book Chapters,in: Climate Finance Theory and Practice, chapter 9, pages 191-212 World Scientific Publishing Co. Pte. Ltd..
  • Handle: RePEc:wsi:wschap:9789814641814_0009
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    1. Ficre Zehaie, 2009. "The Timing and Strategic Role of Self-Protection," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 44(3), pages 337-350, November.
    2. Buob, Seraina & Stephan, Gunter, 2011. "To mitigate or to adapt: How to confront global climate change," European Journal of Political Economy, Elsevier, vol. 27(1), pages 1-16, March.
    3. Klaus Eisenack & Leonhard Kähler, 2012. "Unilateral emission reductions can lead to Pareto improvements when adaptation to damages is possible," Working Papers V-344-12, University of Oldenburg, Department of Economics, revised Jan 2012.
    4. Heike Auerswald & Kai A. Konrad & Marcel Thum, 2011. "Adaptation, Mitigation and Risk-Taking in Climate Policy," CESifo Working Paper Series 3320, CESifo Group Munich.
    5. Clemens Heuson & Wolfgang Peters & Reimund Schwarze & Anna-Katharina Topp, 2015. "Investment and Adaptation as Commitment Devices in Climate Politics," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 62(4), pages 769-790, December.
    6. Buchholz, Wolfgang & Cornes, Richard & Peters, Wolfgang & Rübbelke, Dirk, 2015. "Pareto improvement through unilateral matching of public good contributions: The role of commitment," Economics Letters, Elsevier, vol. 132(C), pages 9-12.
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    10. Udo Ebert & Heinz Welsch, 2012. "Adaptation and Mitigation in Global Pollution Problems: Economic Impacts of Productivity, Sensitivity, and Adaptive Capacity," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 52(1), pages 49-64, May.
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    More about this item

    Keywords

    Climate Finance; Adaptation; Mitigation; Green Climate Fund; International Environmental Agreements; International Transfers; Economics;

    JEL classification:

    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics

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