Technology development and project based mechanisms in international climate change policy

H. Imai, J. Akita, H. Niizawa

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

Abstract

In the earlier paper, we analyzed a possibility of CDM domino, where CDM (Clean Development Mechanism) is a flexibility mechanism adopted in the Kyoto protocol (KP) for the international scheme to prevent climate change due to emission of green house gases (GHG), and domino means adoption of one CDM project induces other CDM projects. In this paper, we attempt to analyze the opposite effect of project based mechanisms including CDM, i.e. the negative impact of adoption of one project upon other potential projects. This possibility has an important implication on the technological development for the prevention of climate change, as the early adoption of a technology receives an unduly special position so that newly developed technology has relatively fewer chances of a success. Even though people disagree over many issues, there seem to be widespread agreement that technological breakthrough is a key element for the long run success of international climate policy. Thus the evaluation of the effect of mechanisms on the technology development to overcome current reliance on carbon intensive technology is important, especially in the ongoing negotiation toward new schemes to be instituted for the period following the period covered by (KP). There are several factors contributing this possible preemption property of project-based mechanisms, in the design of these mechanisms. Especially important is the baseline setting methods, so that credits from projects are computed as the excess reduction of GHG over baseline emission level. When there is an existing firm operating in an industry, adopting a mechanism employing one emission reduction technology which is registered as a CDM, then this technology itself would naturally be a candidate for the baseline for next generation of projects. However, this would set the hurdle higher for a potential project, which further reduces emissions from this technology. In return, there would be an incentive to adopt such a technology as an entry barrier for an incumbent firm. This baseline setting problem is further complicated by the fact that there are several methods proposed and also listed in the Marrakech Accord, which stipulates the concrete rules concerning these mechanisms. Given these potentially negative dynamic effects on the incentives for technological developments, of the current practices in the operation of project-based mechanisms, one important question would be the way to alleviate this kind of effects. There are several tools to be utilized from the choice of project years and extension criterion, to the possibility of changing project boundaries. We carry out this research through a simple dynamic game involving a firm considering whether to engage in a project based mechanism and a firm (inside or outside of the industry) engaging in a R&D activity. Through this, we evaluate the extent of the so-called lock-in effect of CDM so that the further incentive to develop better technology is hampered. Then we expand our analysis to the case of multiple firms operating in the industry, and also multiple firms engaging in potential R&D activities. The result is an alleviation of the adversarial effect due to competition to some degree. Also, we introduce the risk element into the model which again is well developed in the literature of R&D competition in industrial economics. Especially important is the effect of uncertainty involved in appraising the future course of international agreement. We also consider the possible alternatives to the CDM proposed somewhere which involves an upfront subsidy paid out to the project participants, instead of employing baseline-credit scheme. Uncertainty is the most important element and at the presence of multiple developers, the scheme could run into a difficulty. Another proposal compared is a streamlining of current CDM scheme which as is expected has several undesirable effects from environmental viewpoints.

Original languageEnglish
Title of host publication18th World IMACS Congress and MODSIM09 International Congress on Modelling and Simulation
Subtitle of host publicationInterfacing Modelling and Simulation with Mathematical and Computational Sciences, Proceedings
Pages2192-2198
Number of pages7
Publication statusPublished - 2009 Dec 1
Event18th World IMACS Congress and International Congress on Modelling and Simulation: Interfacing Modelling and Simulation with Mathematical and Computational Sciences, MODSIM09 - Cairns, QLD, Australia
Duration: 2009 Jul 132009 Jul 17

Publication series

Name18th World IMACS Congress and MODSIM09 International Congress on Modelling and Simulation: Interfacing Modelling and Simulation with Mathematical and Computational Sciences, Proceedings

Other

Other18th World IMACS Congress and International Congress on Modelling and Simulation: Interfacing Modelling and Simulation with Mathematical and Computational Sciences, MODSIM09
CountryAustralia
CityCairns, QLD
Period09/7/1309/7/17

Keywords

  • Baseline
  • Clean Development Mechanism (CDM)
  • Oligopoly
  • Technology development

ASJC Scopus subject areas

  • Computational Theory and Mathematics
  • Computational Mathematics
  • Modelling and Simulation

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  • Cite this

    Imai, H., Akita, J., & Niizawa, H. (2009). Technology development and project based mechanisms in international climate change policy. In 18th World IMACS Congress and MODSIM09 International Congress on Modelling and Simulation: Interfacing Modelling and Simulation with Mathematical and Computational Sciences, Proceedings (pp. 2192-2198). (18th World IMACS Congress and MODSIM09 International Congress on Modelling and Simulation: Interfacing Modelling and Simulation with Mathematical and Computational Sciences, Proceedings).