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The clean development mechanism versus international permit trading: the effect on technological change

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    The clean development mechanism of the Kyoto Protocol may induce technological change in developing countries. As an alternative to the clean development mechanism regime, developing countries may accept a (generous) cap on their own emissions, allow domestic producers to invest in new efficient technologies, and sell the excess emission permits on the international permit market. The purpose of this article is to show how the gains from investment, and hence the incentive to invest in new technology in developing countries, differ between the two alternative regimes. We show that the difference in the gains from investment depends on whether the producers in developing countries face competitive or noncompetitive output markets, whether the investment affects fixed or variable production costs, and whether producers can reduce emissions through means other than investing in new technology.

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    File URL: http://www.ssb.no/a/publikasjoner/pdf/DP/dp521.pdf
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    Paper provided by Statistics Norway, Research Department in its series Discussion Papers with number 521.

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    Date of creation: Nov 2007
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    Handle: RePEc:ssb:dispap:521
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    1. Greaker, Mads, 2003. "Strategic environmental policy; eco-dumping or a green strategy?," Journal of Environmental Economics and Management, Elsevier, vol. 45(3), pages 692-707, May.
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    4. Steffen Kallbekken & Hege Westskog, 2005. "Should Developing Countries Take on Binding Commitments in a Climate Agreement? An Assessment of Gains and Uncertainty," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 41-60.
    5. Millock, Katrin, 2002. "Technology transfers in the Clean Development Mechanism: an incentives issue," Environment and Development Economics, Cambridge University Press, vol. 7(03), pages 449-466, July.
    6. Requate, Till, 1998. "Incentives to innovate under emission taxes and tradeable permits," European Journal of Political Economy, Elsevier, vol. 14(1), pages 139-165, February.
    7. Cathrine Hagem, 1996. "Joint implementation under asymmetric information and strategic behavior," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 8(4), pages 431-447, December.
    8. James A. Brander & Barbara J. Spencer, 1983. "Strategic Commitment with R&D: The Symmetric Case," Bell Journal of Economics, The RAND Corporation, vol. 14(1), pages 225-235, Spring.
    9. Jeremy I. Bulow & John Geanakoplos & Paul D. Klemperer, 1983. "Multimarket Oligopoly," Cowles Foundation Discussion Papers 674, Cowles Foundation for Research in Economics, Yale University.
    10. Fischer, Carolyn, 2005. "Project-based mechanisms for emissions reductions: balancing trade-offs with baselines," Energy Policy, Elsevier, vol. 33(14), pages 1807-1823, September.
    11. Adam Jaffe & Richard Newell & Robert Stavins, 2002. "Environmental Policy and Technological Change," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 22(1), pages 41-70, June.
    12. Dixit, Avinash, 1979. "The Role of Investment in Entry-Deterrence," The Warwick Economics Research Paper Series (TWERPS) 140, University of Warwick, Department of Economics.
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