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Joint Implementation: Strategic Reactions and Possible Remedies

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  • Franz Wirl
  • Claus Huber
  • I.O Walker

Abstract

This paper investigates the promising proposal of Joint Implementation (JI) to mitigate greenhouse gas emissions. This was ultimately the only concrete outcome of the Conference on Climate Change in Berlin, albeit restricted to a pilot phase. The basic idea, given the public's awareness of global warming, sounds economically plausible: The industrialized countries, the only ones required to stabilize and lower carbon emissions, can search for cheaper reductions of greenhouse gas emissions in developing countries and economies in transition. However, this proposal leads to strategic reactions by developing countries reinforced by the fact that this cheating coincides with the interest of the industrialized country. In short, this proposal will lead to cheating (given asymmetric information) and will thus produce largely faked reductions in emissions. On the constructive side, an efficient mechanism retaining the spirit of JI is derived, which deters strategic reactions. This differs from a usual principal-agent problem through an additional hierarchical layer: a global authority (e.g. the Conference of Parties on Climate Change), an industrialized country and a developing country. The unavoidable loss that is even associated with an optimal scheme due to strategic, behavioural reality (the first best optimum is unattainable, except at the top) leads, of course, to much less glamorous predictions in emission reductions. Moreover, the implicit subsidization scheme focuses and favours on already 'efficient' partners. Copyright Kluwer Academic Publishers 1998

Suggested Citation

  • Franz Wirl & Claus Huber & I.O Walker, 1998. "Joint Implementation: Strategic Reactions and Possible Remedies," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 12(2), pages 203-224, September.
  • Handle: RePEc:kap:enreec:v:12:y:1998:i:2:p:203-224
    DOI: 10.1023/A:1008272620797
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    References listed on IDEAS

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    2. Fischer, Carolyn, 2002. "Determining Project-Based Emissions Baselines with Incomplete Information," Discussion Papers 10520, Resources for the Future.
    3. Strand, Jon, 2013. "Strategic climate policy with offsets and incomplete abatement: Carbon taxes versus cap-and-trade," Journal of Environmental Economics and Management, Elsevier, vol. 66(2), pages 202-218.
    4. Liu, Xuemei, 2008. "The monetary compensation mechanism: An alternative to the clean development mechanism," Ecological Economics, Elsevier, vol. 66(2-3), pages 289-297, June.
    5. Strand,Jon, 2016. "Assessment of net mitigation in the context of international greenhouse gas emissions control mechanisms," Policy Research Working Paper Series 7594, The World Bank.
    6. Matti Liski & Juha Virrankoski, 2004. "Frictions in Project-Based Supply of Permits," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 28(3), pages 347-365, July.
    7. Chiroleu-Assouline, Mireille & Poudou, Jean-Christophe & Roussel, Sébastien, 2018. "Designing REDD+ contracts to resolve additionality issues," Resource and Energy Economics, Elsevier, vol. 51(C), pages 1-17.
    8. Knut Rosendahl & Jon Strand, 2015. "Emissions Trading with Offset Markets and Free Quota Allocations," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 61(2), pages 243-271, June.
    9. Norimichi Matsueda, 2002. "Asymmetrical information and delay of a side payment in unidirectional transboundary pollution," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 5(3), pages 229-247, September.
    10. Hagem, Cathrine, 2009. "The clean development mechanism versus international permit trading: The effect on technological change," Resource and Energy Economics, Elsevier, vol. 31(1), pages 1-12, January.
    11. Axel Michaelowa & Emmanuel Fages, 1999. "Options for baselines of the clean development mechanism," Mitigation and Adaptation Strategies for Global Change, Springer, vol. 4(2), pages 167-185, June.
    12. Jeongmeen Suh & Myeonghwan Cho, 2017. "Roles of Flexible Mechanisms in International Environmental Agreements," Korean Economic Review, Korean Economic Association, vol. 33, pages 239-265.
    13. Suzi Kerr & Catherine Leining, 2003. "Joint Implementation in Climate Change Policy," Working Papers 03_04, Motu Economic and Public Policy Research.
    14. Franz Wirl & Juergen Noll, 2008. "Abatement and Permits when Pollution is Uncertain and Violations are Fined," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 40(2), pages 299-312, June.
    15. Peter Bohm, 2002. "Improving Cost-effectiveness and Facilitating Participation of Developing Countries in International Emissions Trading," International Environmental Agreements: Politics, Law and Economics, Springer, vol. 2(3), pages 261-273, September.
    16. Strand, Jon & Rosendahl, Knut Einar, 2012. "Global emissions effects of CDM projects with relative baselines," Resource and Energy Economics, Elsevier, vol. 34(4), pages 533-548.
    17. Schwarze, Reimund, 2000. "Activities implemented jointly: another look at the facts," Ecological Economics, Elsevier, vol. 32(2), pages 255-267, February.

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