IDEAS home Printed from https://ideas.repec.org/p/zbw/hwwadp/26160.html
   My bibliography  Save this paper

Estimating the CDM market under the Bonn Agreement

Author

Listed:
  • Jotzo, Frank
  • Michaelowa, Axel

Abstract

We analyse the impact of the agreement on implementation of the Kyoto Protocol achieved at COP6bis in Bonn in July 2001 on investment in greenhouse gas emission reduction projects in developing countries through the Clean Development Mechanism (CDM). The required actual emission reductions for participating Annex B countries overall will be relatively small, as the United States do not intend to ratify the Protocol and significant amounts of carbon sequestered in domestic sinks will be credited to Annex B countries under Article 3.4 of the Protocol. In addition, there is a large potential supply of surplus emissions quota (hot air) from Russia and other economies in transition. This means that demand for certified emission reductions (CERs) from CDM projects will be relatively small. The magnitude of the CDM as a means for meeting Kyoto Protocol commitments, and individual countries' shares, will be influenced by a host of factors both on the demand and the supply side of the global carbon market. The analysis is based on a quantitative model of the global carbon market, based on marginal abatement cost curves and designed specifically for this type of analysis. We estimate required emission reductions in Annex B countries, the share of the Kyoto mechanisms in meeting this demand, the price for CERs, and the geographical distribution of CDM projects, and discuss distribution of sequestration projects. A ?low demand, low price? carbon market scenario appears likely, with intense competition between developing countries to attract CDM investors. Sensitivity analysis illustrates the likely direction and magnitude of impacts when key supply and demand parameters are changed. We examine the impact of higher or lower implementation and transaction costs, as well as expanding or contracting the supply of CERs through baseline and additionality rules. While the CDM could suffer a loss in competitiveness if transaction costs are too high, changes in CDM supply parameters do not fundamentally change estimates of CDM size and revenue. On the demand side by contrast there are there are a number of factors which could greatly reduce the size of the CDM, or even preclude commercially driven CDM projects altogether. Key factors that could harm the CDM are lower business-as-usual emissions growth in Annex B countries, higher supply of surplus emissions quota (hot air) from EIT countries, and possibly crediting under Article 3.4 of sequestration in agricultural soils. If however the United States participated in implementing the Kyoto Protocol, none of these factors would be a threat to a viable and sizeable CDM. We conclude that although the potential role for the CDM is seriously diminished under the Bonn agreement and without the United States on board, a significant amount of CDM projects in developing countries could still be achieved. Much will depend on international market factors, as well as the design of rules for CDM project implementation. The best strategy is to prepare to be competitive in a low-demand, lowprice market, and at the same time to strive for the United States to still come on board the Kyoto Protocol.

Suggested Citation

  • Jotzo, Frank & Michaelowa, Axel, 2001. "Estimating the CDM market under the Bonn Agreement," HWWA Discussion Papers 145, Hamburg Institute of International Economics (HWWA).
    • Handle: RePEc:zbw:hwwadp:26160
    as

    Download full text from publisher

    File URL: https://www.econstor.eu/bitstream/10419/19406/1/145.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. ZhongXiang Zhang, 2000. "Estimating the size of the potential market for the Kyoto flexibility mechanisms," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 136(3), pages 491-521, September.
    2. Taishi Sugiyama & Axel Michaelowa, 2001. "Reconciling the design of CDM with inborn paradox of additionality concept," Climate Policy, Taylor & Francis Journals, vol. 1(1), pages 75-83, March.
    3. A. Denny Ellerman & Ian Sue Wing, 2000. "Supplementarity: An Invitation to Monopsony?," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4), pages 29-59.
    4. Zhang, ZhongXiang, 2000. "Can China afford to commit itself an emissions cap? An economic and political analysis," Energy Economics, Elsevier, vol. 22(6), pages 587-614, December.
    5. repec:dgr:rugccs:199920 is not listed on IDEAS
    6. Zhang, ZhongXiang, 1999. "Estimating the size of the potential market for all three flexibility mechanisms under the Kyoto Protocol," MPRA Paper 13088, University Library of Munich, Germany.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Greiner, Sandra & Michaelowa, Axel, 2003. "Defining Investment Additionality for CDM projects--practical approaches," Energy Policy, Elsevier, vol. 31(10), pages 1007-1015, August.
    2. James Roshetko & Rodel Lasco & Marian Angeles, 2007. "Smallholder Agroforestry Systems For Carbon Storage," Mitigation and Adaptation Strategies for Global Change, Springer, vol. 12(2), pages 219-242, February.
    3. -, 2007. "Renewable energy sources in Latin America and the Caribbean: two years after the Bonn Conference," Documentos de Proyectos 3563, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
    4. Tassone, Valentina C. & Wesseler, Justus & Nesci, Francesco S., 2004. "Diverging incentives for afforestation from carbon sequestration: an economic analysis of the EU afforestation program in the south of Italy," Forest Policy and Economics, Elsevier, vol. 6(6), pages 567-578, October.
    5. Paul-Marie Boulanger & Thierry Bréchet & Benoit Lussis, 2005. "Le Mécanisme pour un Développement Propre tiendra-t-il ses promesses ?," Reflets et perspectives de la vie économique, De Boeck Université, vol. 0(3), pages 5-27.
    6. Sreekanth, K.J., 2016. "Review on integrated strategies for energy policy planning and evaluation of GHG mitigation alternatives," Renewable and Sustainable Energy Reviews, Elsevier, vol. 64(C), pages 837-850.
    7. Chen, Wenying, 2003. "Carbon quota price and CDM potentials after Marrakesh," Energy Policy, Elsevier, vol. 31(8), pages 709-719, June.
    8. U. Kalpagam & Karimullah, 2007. "India's Business Prospects in the Global Emissions Market," Global Business Review, International Management Institute, vol. 8(2), pages 237-250, December.
    9. Stronzik, Marcus & Hunt, Alistair & Eckermann, Frauke & Taylor, Tim, 2003. "The Role of Transaction Costs and Risk Premia in the Determination of Climate Change Policy Responses," ZEW Discussion Papers 03-59, ZEW - Leibniz Centre for European Economic Research.
    10. Kovacevic, Vujadin & Wesseler, Justus, 2010. "Cost-effectiveness analysis of algae energy production in the EU," Energy Policy, Elsevier, vol. 38(10), pages 5749-5757, October.
    11. Axel Michaelowa & Richard Tol, 2002. "Outlook for the International Climate Policy Regime– Revolution or Reform?," International Environmental Agreements: Politics, Law and Economics, Springer, vol. 2(3), pages 217-219, September.
    12. Kemfert, Claudia & Zhang, ZhongXiang, 2003. "Linking developing country's cooperation on climate control with industrialized country's R&D and technology transfer," MPRA Paper 41473, University Library of Munich, Germany.
    13. Olschewski, Roland & Benítez, Pablo C. & de Koning, G.H.J. & Schlichter, Tomás, 2005. "How attractive are forest carbon sinks? Economic insights into supply and demand of Certified Emission Reductions," Journal of Forest Economics, Elsevier, vol. 11(2), pages 77-94, September.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Zhang, ZhongXiang, 2001. "An economic assessment of the Kyoto Protocol using a global model based on the marginal abatement costs of 12 regions," MPRA Paper 13148, University Library of Munich, Germany.
    2. Frank Jotzo & Axel Michaelowa, 2002. "Estimating the CDM market under the Marrakech Accords," Climate Policy, Taylor & Francis Journals, vol. 2(2-3), pages 179-196, September.
    3. Zhang, ZhongXiang, 2001. "An assessment of the EU proposal for ceilings on the use of Kyoto flexibility mechanisms," Ecological Economics, Elsevier, vol. 37(1), pages 53-69, April.
    4. Zhang, ZhongXiang, 2008. "Asian energy and environmental policy: Promoting growth while preserving the environment," Energy Policy, Elsevier, vol. 36(10), pages 3905-3924, October.
    5. Zhang, ZhongXiang, 2000. "The size of the carbon market study: discussion," MPRA Paper 14507, University Library of Munich, Germany.
    6. Zhang, ZhongXiang, 2002. "The economic effects of an alternative EU emissions policy," Journal of Policy Modeling, Elsevier, vol. 24(7-8), pages 667-677, November.
    7. Heleen de Coninck & Nico van der Linden, 2003. "Characteristics of Carbon Transactions. Joint Implementation, Clean Development Mechanisms and Emission Trading in Perspective," Energy & Environment, , vol. 14(5), pages 557-578, September.
    8. Jacob Werksman & Kevin Baumert & Navroz Dubash, 2003. "Will International Investment Rules Obstruct Climate Protection Policies? An Examination of the Clean Development Mechanism," International Environmental Agreements: Politics, Law and Economics, Springer, vol. 3(1), pages 59-86, March.
    9. ZhongXiang Zhang, 2000. "Estimating the size of the potential market for the Kyoto flexibility mechanisms," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 136(3), pages 491-521, September.
    10. Rubbelke, Dirk T.G. & Rive, Nathan, 2008. "Effects of the CDM on Poverty Eradication and Global Climate Protection," Climate Change Modelling and Policy Working Papers 46650, Fondazione Eni Enrico Mattei (FEEM).
    11. Zhang, ZhongXiang, 2010. "China in the transition to a low-carbon economy," Energy Policy, Elsevier, vol. 38(11), pages 6638-6653, November.
    12. Zhang, ZhongXiang, 2004. "Meeting the Kyoto targets: the importance of developing country participation," Journal of Policy Modeling, Elsevier, vol. 26(1), pages 3-19, January.
    13. ZhongXiang Zhang, 2004. "The World Bank’s Prototype Carbon Fund and China," Working Papers 2004.138, Fondazione Eni Enrico Mattei.
    14. Zhang, ZhongXiang, 2006. "Toward an effective implementation of clean development mechanism projects in China," Energy Policy, Elsevier, vol. 34(18), pages 3691-3701, December.
    15. Zhang, Zhong Xiang, 2001. "Why has the energy intensity fallen in China's industrial sector in the 1990s? : the relative importance of structural change and intensity change," CCSO Working Papers 200105, University of Groningen, CCSO Centre for Economic Research.
    16. Halsnaes, Kirsten, 2002. "Market potential for Kyoto mechanisms--estimation of global market potential for co-operative greenhouse gas emission reduction policies," Energy Policy, Elsevier, vol. 30(1), pages 13-32, January.
    17. Haites, Erik & Missfeldt, Fanny, 2004. "Liquidity implications of a commitment period reserve at national and global levels," Energy Economics, Elsevier, vol. 26(5), pages 845-868, September.
    18. Stevens, Brandt & Rose, Adam, 2002. "A Dynamic Analysis of the Marketable Permits Approach to Global Warming Policy: A Comparison of Spatial and Temporal Flexibility," Journal of Environmental Economics and Management, Elsevier, vol. 44(1), pages 45-69, July.
    19. Zhang, ZhongXiang, 2010. "Is it fair to treat China as a Christmas tree to hang everybody's complaints? Putting its own energy saving into perspective," Energy Economics, Elsevier, vol. 32(Supplemen), pages 47-56, September.
    20. 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.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:zbw:hwwadp:26160. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ZBW - Leibniz Information Centre for Economics (email available below). General contact details of provider: https://edirc.repec.org/data/hwwaade.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.