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Cooperation to Reduce Developing Country Emissions

  • Suzi Kerr

    ()

    (Motu Economic and Public Policy Research)

  • Adam Millard-Ball

    ()

    (McGill University)

Without effective developing country participation in climate mitigation it will be impossible to meet global concentration and climate change targets. However, developing countries are unwilling and, in many cases, unable to bear the mitigation cost alone. They need huge transfers of resources – financial, knowledge, technology, and capability – from industrialised countries. In this paper, we evaluate instruments that can induce such resource transfers, including tradable credits, mitigation funds and results-based agreements. We identify key constraints that affect the efficiency and political potential of different instruments, including two-sided private information leading to adverse selection, moral hazard and challenging negotiations; incomplete contracts leading to under-investment; and high levels of uncertainty about emissions paths and mitigation potential. We consider evidence on the poor performance of current approaches to funding developing country mitigation – primarily purchasing offsets through the Clean Development Mechanism – and explore to what extent other approaches can address problems with offsets. We emphasise the wide spectrum of situations in developing countries and suggest that solutions also need to be differentiated and that no one policy will suffice: some policies will be complements, while others are substitutes. We conclude by identifying research needs and proposing a straw man to broaden the range of “contracting” options considered.

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Paper provided by Motu Economic and Public Policy Research in its series Working Papers with number 12_03.

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Length: 39 pages
Date of creation: Mar 2012
Date of revision:
Handle: RePEc:mtu:wpaper:12_03
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  1. Muller, Adrian, 2006. "How to Make the Clean Development Mechanism Sustainable - The Potential of Rent Extraction," Working Papers in Economics 214, University of Gothenburg, Department of Economics.
  2. Michaelowa, Axel & Michaelowa, Katharina, 2005. "Climate or development: Is ODA diverted from its original purpose?," HWWI Research Papers 4-2, Hamburg Institute of International Economics (HWWI).
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  16. Strand, Jon, 2010. "Carbon offsets with endogenous environmental policy," Policy Research Working Paper Series 5296, The World Bank.
  17. Charles F. Mason & Andrew J. Plantinga, 2011. "Contracting for Impure Public Goods: Carbon Offsets and Additionality," Working Papers 2011.13, Fondazione Eni Enrico Mattei.
  18. Florens Flues & Axel Michaelowa & Katharina Michaelowa, 2010. "What determines UN approval of greenhouse gas emission reduction projects in developing countries?," Public Choice, Springer, vol. 145(1), pages 1-24, October.
  19. Jonah Busch & Ruben Lubowski & Fabiano Godoy & Marc Steininger & Arief Anshory Yusuf & Kemen Austin & Jenny Hewson & Daniel Juhn & Muhammad Farid & Frederick Boltz, 2011. "Structuring national and sub-national economic incentives to reduce emissions from deforestation in Indonesia," Working Papers in Economics and Development Studies (WoPEDS) 201105, Department of Economics, Padjadjaran University, revised Jun 2011.
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