Environmental Valuation & Cost-Benefit News

Abstract: Under the Kyoto Protocol, countries can meet treaty obligations by investing in projects that reduce or sequester greenhouse gases elsewhere. Prior to ratification, treaty participants agreed to launch country-based pilot projects, referred to collectively as Activities Implemented Jointly (AIJ), to test novel aspects of the project-related provisions. Relying on a 10-year history of projects, the authors investigate the determinants of AIJ investment. Their findings suggest that national political objectives and possibly deeper cultural ties influenced project selection. This characterization differs from the market-based assumptions that underlie well-known estimates of cost-savings related to the Protocol's flexibility mechanisms. The authors conclude that if approaches developed under the AIJ programs to approve projects are retained, benefits from Kyoto's flexibility provisions will be less than those widely anticipated.

Keywords: abatement, abatement costs, approach, Biological Diversity, carbon, carbon dioxide, carbon offset, carbon taxes, Clean Development Mechanism, Climate Change, cost assumptions, democratic institutions, developed countries, development assistance, discount rate, Economics, emission, emission levels, emission reduction, emission reductions, emissions, environmental, environmental issues, foreign direct investment, foreign investment, fossil, fossil fuels, GDP, global emissions, greenhouse effect, greenhouse gas, greenhouse gas emissions, greenhouse gases, heating systems, income, international investors, investment activity, investment choices, investment climate, investment decisions, investment flows, investment opportunities, investment projects, investor countries, joint implementation, marginal cost, option value, Ozone Layer, per capita income, pilot projects, pollution, portfolio, present value, private investment, profitability, public funds, quotas, reducing emissions, savings, streams, tons of carbon, tradable permit, tradable permit markets, transaction costs, transition economies, valuation

by Gunnar Breustedt and Donald F. Larson

The World Bank www.worldbank.org
Research Working Paper Number WPS 4131; February 1, 2007; 32 pages
http://go.worldbank.org/587J4ZXFA0