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Understanding Climate Change Challenges and the Kyoto Protocol

Explore challenges to the Kyoto Protocol, including cost minimization strategies, efficiency assumptions, and policy options in addressing climate change. Learn about Emission Reduction Credits, Clean Development Mechanism, and key issues with the CDM. Get tips for assignments and delve into current climate policies analysis.

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Understanding Climate Change Challenges and the Kyoto Protocol

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

  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

  13. 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: • (marginal) benefits • (marginal) costs • discounting • efficiency • cost effectiveness • distributional equity • command and control • market based instruments • innovation / technological change • uncertainty • externalities • incentives, generally (all the time)

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