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Clean-development investments: an incentive-compatible CGE modeling framework

Author

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  • Springmann, Marco
  • Böhringer, Christoph
  • Rutherford, Thomas F.

Abstract

The Clean Development Mechanism (CDM) established under the Kyoto Protocol allows industrialized Annex I countries to offset part of their domestic emissions by investing in emissions-reduction projects in developing non-Annex I countries. We present a novel CDM modeling framework which can be used in computable-general-equilibrium (CGE) models to quantify the sector-specific and macroeconomic impacts of CDM investments. Compared to conventional approaches that mimic CDM as sectoral emission trading, our framework adopts a micro consistent representation of the CDM incentive structure and its investment characteristics. In our empirical application based on GTAP data we show that incentive compatibility implies that CDM-implementing sectors do not suffer and overall welfare gains tend to be lower than suggested by conventional modeling approaches.

Suggested Citation

  • Springmann, Marco & Böhringer, Christoph & Rutherford, Thomas F., 2013. "Clean-development investments: an incentive-compatible CGE modeling framework," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79939, Verein für Socialpolitik / German Economic Association.
  • Handle: RePEc:zbw:vfsc13:79939
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    References listed on IDEAS

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    1. Steffen Kallbekken, 2007. "Why the CDM will reduce carbon leakage," Climate Policy, Taylor & Francis Journals, vol. 7(3), pages 197-211, May.
    2. Springer, Urs, 2003. "The market for tradable GHG permits under the Kyoto Protocol: a survey of model studies," Energy Economics, Elsevier, vol. 25(5), pages 527-551, September.
    3. Rutherford, Thomas F., 1995. "Extension of GAMS for complementarity problems arising in applied economic analysis," Journal of Economic Dynamics and Control, Elsevier, vol. 19(8), pages 1299-1324, November.
    4. Christoph Bohringer & Jared Carbone & Thomas F. Rutherford, "undated". "Embodied Carbon Tariffs," Working Papers 2013-24, Department of Economics, University of Calgary, revised 11 Oct 2013.
    5. Michaelowa, Axel & Jotzo, Frank, 2005. "Transaction costs, institutional rigidities and the size of the clean development mechanism," Energy Policy, Elsevier, vol. 33(4), pages 511-523, March.
    6. Gernot Klepper & Sonja Peterson, 2006. "Emissions Trading, CDM, JI, and More: The Climate Strategy of the EU," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2), pages 1-26.
    7. Jean-Marc Burniaux & Jean Château & Rob Dellink & Romain Duval & Stéphanie Jamet, 2009. "The Economics of Climate Change Mitigation: How to Build the Necessary Global Action in a Cost-Effective Manner," OECD Economics Department Working Papers 701, OECD Publishing.
    8. Franck Lecocq, 2005. "State and Trends of the Carbon Market—2004," World Bank Publications, The World Bank, number 7457.
    9. Christopher N. MacCracken & James A. Edmonds & Son H. Kim & Ronald D. Sands, 1999. "The Economics of the Kyoto Protocol," The Energy Journal, International Association for Energy Economics, vol. 0(Special I), pages 25-71.
    10. Klepper, Gernot, 2011. "The future of the European Emission Trading System and the Clean Development Mechanism in a post-Kyoto world," Energy Economics, Elsevier, vol. 33(4), pages 687-698, July.
    11. Franck Lecocq & Karan Capoor, "undated". "State and Trends of the Carbon Market 2005," World Bank Other Operational Studies 13411, The World Bank.
    12. Böhringer, Christoph & Rutherford, Thomas Fox & Wiegard, Wolfgang, 2003. "Computable general equilibrium analysis: Opening a black box," ZEW Discussion Papers 03-56, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    13. repec:wbk:wboper:13410 is not listed on IDEAS
    14. Christoph Böhringer & Thomas Rutherford, 2002. "Carbon Abatement and International Spillovers," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 22(3), pages 391-417, July.
    15. Emma Paulsson, 2009. "A review of the CDM literature: from fine-tuning to critical scrutiny?," International Environmental Agreements: Politics, Law and Economics, Springer, vol. 9(1), pages 63-80, February.
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    More about this item

    JEL classification:

    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth

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