Project Mechanisms and Technology Di usion

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Niveau: Secondaire, CAP
Project Mechanisms and Technology Di?usion in Climate Policy March 15, 2010 Abstract The paper deals with the di?usion of GHG mitigation technologies in developing countries. We develop a model where an abatement technology is progressively adopted by ?rms and we use it to compare the Clean Development Mechanism (CDM) with a standard Cap and Trade scheme (C&T). In the presence of learning spillovers, we show that the CDM yields a higher social welfare than C&T if the ?rst adopter receives CDM credits whereas the followers do not. The analysis leads us to suggest two CDM design improvements: re- laxing the additionality constraint for projects which generate signi?cant learning externalities, and allowing collective CDM projects which could internalize learning externalities. Keywords : climate policy, technology di?usion, Kyoto Protocol, Clean Development Mechanism, emissions trading JEL code: H87, O33, Q55, Q54 1

  • can also

  • adoption

  • countries

  • allowing industrialized countries

  • cdm

  • learning spillovers

  • climate treaties

  • collective cdm

  • receives credits

  • technology di?usion


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ProjectMechanismsandTechnologyDi¤usioninClimatePolicyMarch15,2010AbstractThepaperdealswiththedi¤usionofGHGmitigationtechnologiesindevelopingcountries.Wedevelopamodelwhereanabatementtechnologyisprogressivelyadoptedby…rmsandweuseittocomparetheCleanDevelopmentMechanism(CDM)withastandardCapandTradescheme(C&T).Inthepresenceoflearningspillovers,weshowthattheCDMyieldsahighersocialwelfarethanC&Tifthe…rstadopterreceivesCDMcreditswhereasthefollowersdonot.TheanalysisleadsustosuggesttwoCDMdesignimprovements:re-laxingtheadditionalityconstraintforprojectswhichgeneratesigni…cantlearningexternalities,andallowingcollectiveCDMprojectswhichcouldinternalizelearningexternalities.Keywords:climatepolicy,technologydi¤usion,KyotoProtocol,CleanDevelopmentMechanism,emissionstradingJELcode:H87,O33,Q55,Q541
1IntroductionDuetoeconomicgrowth,developingcountriesareexpectedtoovertakeindustri-alizedcountriesastheleadingsourceofgreenhousegases(GHG)inthemediumorlongterm.Thetransferanddi¤usionofclimate-friendlytechnologiesintheseeconomiesisseenasakeymeansforsolvingtheclimatechangeproblem.Ac-cordingly,technologyissuesareincludedinboththeUnitedNationsFrameworkConventiononClimateChange(UNFCCC)anditsKyotoProtocol.TheAsia-Paci…cPartnershiponCleanDevelopmentandClimateinitiatedbytheU.S.administrationin2005alsoplacesaverystrongemphasisonthedevelopmentandsharingofmoree¢cientenergytechnologies.TheCleanDevelopmentMechanism(CDM)isconsideredbymanyasanim-portanttooltostimulatetechnologytransferanddi¤usion.ItisanarrangementundertheKyotoProtocolallowingindustrializedcountrieswithagreenhousegasreductioncommitment(theso-calledAnnex1countries)or…rmslocatedinthesecountriestoinvestinemissionreducingprojectsincountriesthathavenotmadesuchcommitments(theAnnex2countries).Theseprojects,usuallycar-riedoutindevelopingcountries,provideacheaperalternativetocostlyemissionreductionsinindustrializedcountries.Theyalsoassisthostcountriesinachiev-ingsustainabledevelopement.TheCDMcan…nallycontributetointernationaltechnologytransferby…nancingprojectsusingtechnologiesnotavailableinthehostcountriesandtotechnologydi¤usionwithinthecountries.1Suchtransfershavegraduallygainedinimportanceinpolicydebates;theyareinparticularatthecoreofongoingtalksonthePost-Kyotoregime.Inthispaperwedevelopamodeltostudywhetheremissionstradingcanyieldthesociallyoptimalpathoftechnologydi¤usion2.WefocusontheCDM,1ItisworthnotingthattheCDMdoesnothaveanexplicittechnologytransferanddi¤usionmandateundertheKyotoProtocol.ButtheCDMisclearlylinkedtothetechnologicalissueinthepolicydebateonclimatechange,andinparticular,inpost-Kyototalks.2Themodelimplicitlyreliesonarelativelynarrowde…nitionoftechnologytransfer.In2
whosespeci…cityliesintheadditionalityrequirement,whichisthat…rmsmayimplementaCDMprojectonlyifemissionscreditsmaketheprojectprof-itable.Inordertoinvestigatetheimpactofadditionality,wecomparetheCDMwiththetraditionalCapandTradeprogram(C&T)inwhichanyabatement-whetherprivatelypro…tableornot-makesemissionscreditsavailable.Wethencharacterizetwowaystoimprovethee¢ciencyoftheCDM:relaxingtheadditionalityconditionsandallowingcollectiveCDMs.Themodeldescribesn…rmslocatedinahostcountrywhichinitiallyoperatewithanoldtechnology.These…rmscouldadoptacleanertechnologysimultane-ouslyorsequentially.The…rstadoptionisusuallytheinternationaltechnologytransfer,sincethetechnologywasnotpreviouslyavailableinthecountry.Sub-sequentadoptionscorrespondtothedi¤usionwithinthehostcountry.Adoptionentailsa…xedcostwhichendogenouslydecreasesoncethetech-nologyhasbeenintroducedinthehostcountry.Inreality,thatdecreasemayoccurbecauseobservingtheoutcomeofthe…rstadoptionofthenewtech-nologyreducesuncertaintyabouttechnologybene…tsforsubsequentadopters(called"followers"),orthe…rstcompanytoadopt-the"leader"-accumu-lateslearning-by-doingskillswhichdi¤usethroughvariouschannels(e.g.labormarket)topotentialadopters.Theselearningspilloversgeneratetwotypesofine¢ciency.The…rstisthestandardunder-provisionproblem.Thepropensityfora…rmtotaketheleadinadoptingnewtechnologyislow,since…rmswhomayconsiderthestepfailtotakeintoaccountpositiveexternalities,therebyhinderingtechnologytransfer.Thesecondine¢ciencyisacoordinationproblemthatresultsfromthedynamiccharacterofthedi¤usionprocess.All…rmswouldprefertofollowsothattheycanenjoyareducedadoptioncost.Butfollowingrequiresthatone…rmtakethelead.Thisisadynamicversionofa"chickengame"whereboth…rmsderiveaparticular,itisnotdesignedtoanalyzeissuessuchashumancapacitybuilding.3