Incentive aspects of the standardization of baseline in the project based mechanisms in the international environmental cooperation

H. Imai, J. Akita, H. Niizawa

Research output: Chapter in Book/Report/Conference proceedingConference contribution

Abstract

CDM was the major source of supply of emission traded at EU-ETC, although there were several criticisms against it. We examine a possible standardization of baseline setting method as discussed in the CDM reform at KP of UNFCCC and its CDM-EB in order to simplify the procedure and mitigate the costs born by the applicant, which was blamed for one major source of eclipse of CDM projects in the LDC.. Especially we tried to examine the role of transaction costs and self-selection under such baseline setting method. Combining several assumptions, we show that various problems could come out, and we tend to favor resolving the issue of transaction costs by itself rather than resolution via the standardization of the baseline setting methods. First, we set out a simple model with a fixed output level to introduce baseline setting corresponding to the current practice with perfect information, (which of course is an idealization). Compared to this is a standardized baseline setting method where at the certain level, baseline emission level of GHG (in terms of emission factor) . We take the case of greenfield project due to increased demand in an industry, so that even without a registration as a CDM project and hence no credits revenue some project would take place with possibly more emissions. Then introducing uncertainty into some parameters, we examine the set of potential projects attracted to CDM under each baseline setting method with transaction costs explicitly accounted for as a component of fixed costs. As an immediate and obvious conclusion, due to the alleviation of the transaction costs, smaller projects would be induced to apply for the CDM. However, because of our simplified setup where true baseline level is not accompanied with an increased production cost, no over-crediting takes place. Next we consider a particular assumption due to Fischer that emission level after the project and the true baseline level are proportional. Under this assumption, it is possible that quite different types of projects are induced to apply for CDM, and therefore there is a possibility of over-crediting. Introducing the possibility of scale parameter and the parameter representing a true baseline emission level, we observe that several possibilities could coexist. Finally we account for the proposal made by CDM-EB with some warning based on the observations made above. Then we conclude that even though the CDM itself may be doomed to fade out, the issue of correct measurement of emission reduction, and to that effect any activity for the public good, is the major issue in the international negotiation together with several new mechanisms proposed, and so the results obtained in this exercise here could be of certain values for the future argument in the international environmental policy, especially of the economic mehanisms.

Original languageEnglish
Title of host publicationProceedings - 20th International Congress on Modelling and Simulation, MODSIM 2013
EditorsJulia Piantadosi, Robert Anderssen, John Boland
PublisherModelling and Simulation Society of Australia and New Zealand Inc. (MSSANZ)
Pages1256-1262
Number of pages7
ISBN (Electronic)9780987214331
Publication statusPublished - 2013 Jan 1
Event20th International Congress on Modelling and Simulation - Adapting to Change: The Multiple Roles of Modelling, MODSIM 2013 - Held jointly with the 22nd National Conference of the Australian Society for Operations Research, ASOR 2013 and the DSTO led Defence Operations Research Symposium, DORS 2013 - Adelaide, Australia
Duration: 2013 Dec 12013 Dec 6

Publication series

NameProceedings - 20th International Congress on Modelling and Simulation, MODSIM 2013

Conference

Conference20th International Congress on Modelling and Simulation - Adapting to Change: The Multiple Roles of Modelling, MODSIM 2013 - Held jointly with the 22nd National Conference of the Australian Society for Operations Research, ASOR 2013 and the DSTO led Defence Operations Research Symposium, DORS 2013
CountryAustralia
CityAdelaide
Period13/12/113/12/6

Keywords

  • Baseline-credit
  • CDM

ASJC Scopus subject areas

  • Information Systems and Management
  • Modelling and Simulation

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  • Cite this

    Imai, H., Akita, J., & Niizawa, H. (2013). Incentive aspects of the standardization of baseline in the project based mechanisms in the international environmental cooperation. In J. Piantadosi, R. Anderssen, & J. Boland (Eds.), Proceedings - 20th International Congress on Modelling and Simulation, MODSIM 2013 (pp. 1256-1262). (Proceedings - 20th International Congress on Modelling and Simulation, MODSIM 2013). Modelling and Simulation Society of Australia and New Zealand Inc. (MSSANZ).