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

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

3. 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?

4. 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

5. 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.

6. 2002 Emissions and Kyoto Targets

7. CDM Investors by Region

8. But performance so far has not been great

9. CDM Projects by Type

10. Supply projections of CERs

11. High variance in performance by type

12. EUA and CER prices

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

15. CDM Transaction Costs

16. 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