Instruments for Climate Policy

Instruments for Climate Policy

Limited versus Unlimited Flexibility

New Horizons in Environmental Economics series

Edited by Johan Albrecht

Instruments for Climate Policy focuses on economic and political aspects related to the recent proposals and the debate on limits in flexibility, and discusses EU and US perspectives on climate policy instruments and strategies. This is followed by chapters on economic efficiency and the use of flexible instruments as well as contributions to the debate on ‘when flexibility’, on the arguments behind the EU ceilings proposal and on voluntary approaches to climate policy. One of the main conclusions reached with respect to proposals for limiting flexibility is the need to evaluate simultaneously their economic, ecological and international political consequences. The authors include both important policymakers and leading academics in the area.

Chapter 10: Risk management of joint implementation and clean development mechanism projects through carbon investment funds

Josef Janssen

Subjects: economics and finance, environmental economics, environment, climate change, environmental economics


10. Risk management of joint implementation and clean development mechanism projects through carbon investment funds Josef Janssen 1. INTRODUCTION The Kyoto Protocol to the United Nations Framework Convention on Climate Change (UNFCCC), adopted in December 1997 by more than 150 countries, has established global markets for greenhouse gas (GHG) emission reductions and permits. This emerging global market, the value of which is estimated to amount to probably several ten billion US dollars annually,1 will offer challenging opportunities to a wide variety of different players in industry and business. By means of the market-based Kyoto mechanisms joint implementation (JI), clean development mechanism (CDMs) and international emissions trading (IET), it will be possible to trade emission permits globally. JI and IET enable international transactions of emission permits among countries with emission reduction or limitation targets. This is the group of so-called Annex I countries, which comprises industrialized countries and countries with economies in transition. The CDM allows developing countries, that is non-Annex I countries, to deliver emission permits to Annex I countries. Demand will be driven by the emission reduction commitments of Annex I countries. This group has committed itself to reduce its overall emissions of carbon dioxide, methane and other four GHGs by at least 5 per cent as compared to 1990 emission levels. This should be achieved by the first commitment period 2008–12. Emission permits of JI and CDM projects need to be generated before their international transfer, and thus require investments in abatement activities. As with all...

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