ECON1661/API135 section: Climate change overview 4/17/2009

Overview of section Topics from lecture: challenges to Kyoto CDM Problem Tips for assignment Next week – analysis of current climate policies

Topics from lecture: challenges to Kyoto Governments as cost minimizers Assumptions for efficiency of CAT: cost minimizers, know MC of abatement function At best, nation states would equate national marginal abatement costs based on domestic policies that may or may not be cost effective Policy options? Leakage Additionality What is the counterfactual? Questions?

Clean Development Mechanism Annex I countries can buy Emission Reduction Credits from projects in developing countries. Allowances Time Emissions Cap Actual Allowances Emission Reduction Credits Time Emissions Actual Counterfactual

Background: The CDM 2 goals: Sustainable development and low- cost compliance. Project must be approved by CDM Executive Board and verified by an auditor. Credits can be traded like AAUs or emission allowances.

2002 Emissions and Kyoto Targets

CDM Investors by Region

But performance so far has not been great

CDM Projects by Type

Supply projections of CERs

High variance in performance by type

EUA and CER prices

Problems with the CDM Reduces incentives for developing countries to undertake binding commitments What is the baseline? Project “additionality” High transaction costs

CDM Transaction Costs

Some tips for the problem set Do some research and cite your sources!– But keep it simple (max 3 pages) Some topics you might address: command and control market based instruments innovation / technological change uncertainty externalities incentives, generally (all the time) (marginal) benefits (marginal) costs discounting efficiency cost effectiveness distributional equity