Claudia Kemfert

1
Linking Developing Countrys Cooperation On
Climate ControlWith Industrialized Countrys RD
And Technology Transfer

• Claudia Kemfert
• S.P.E.E.D. Scientific Pool of Environmental
  Economic Disciplines
• University of Oldenburg
• http//www.uni-oldenburg.de/Speed
• IEW, Laxenburg, June 2003

2
Linking Developing Countrys Cooperation On
Climate Control

• Structure
• Introduction
• International Climate Control Coalitions
• Role of developing countries Issue Linkage
• Game Theoretic Approach of Issue Linkage
• Economic Impact Assessment / Model
  Characteristics
• Model Results
• Conclusions

3
Climate Change Negotiations

• Climate Policy Emissions Reduction of Annex I
  regions
• Role of Developing Countries CDM enough real
  emissions reductions
• Idea combine emissions reductions of Annex I and
  non Annex I regions with incentives for
  cooperation issue linkage with RD investment
  cooperation
• Climate control coalitions cooperating on RD
  investment that triggers low cost environmentally
  friendly technologies
• Industrialized countrys cooperating on climate
  control and RD-induced technological innovations
  

4
Game Theoretic Approach of Issue Linkage

• Free riding position of non cooperating nations
  (prisoners dilemma) economic payoffs of free
  riding are higher than joining a coalition
• Issue linkage incentives for free riders to join
  a coalition
• Issue linkage with public good as environment and
  other issues like international security and
  finance
• Redistribution mechanism among signatories
  countries pay off countries whose net costs are
  higher than net costs
• Side transfers /side Payments as technology and
  capital transfer (CarraroSiniscalco, Hoel, Tol,
  Lise et al.)
• Trade sanctions against free rider (Barett)
• Linking environmental negotiations with increased
  expenditures in RD (CarraroSiniscalco 1997,
  1995 and Katsoulacos (1997))

5
Scenario definition
6
Game Theoretic Approach of Issue Linkage
Two stage game 1. Coalition game to join a CC
coalition or not 2. Open loop Nash game to
determine policy variables Issue linkage
Cooperation on Climate Control (CC) and RD
investments that trigger technological
innovations (energy efficiencies)
7
The Model WIAGEM I

• Economic Impact assessment by World General
  equilibrium model WIAGEM climate integration
• Recursive dynamic MRT model
• 25 world regions aggregated to 14 trading
  regions, 14 sectors
• Induced technological change energy efficiency
  increases due to RD expenditures
• 50 years time period, solving in 5 years time
  steps, 2100 Model version
• five energy sectors coal, natural gas, crude
  oil, petroleum and coal products and electricity
• 3 GHG carbon dioxide (CO2), methane (CH4) and
  nitrous dioxide (N2O)

8
The Model WIAGEM II

• Economic Impact Assessment of Climate Change
• Protection Costs due to Sea level rise
• Impacts on agriculture, forestry, water resources
  and energy consumption
• Impacts on ecosystems and mortality due to vector
  borne diseases, and cardiovascular and
  respiratory disorders Evaluation by Tol (2001)
• Full Description of WIAGEM model in
• Environmental Science and Policy, Vol. 5, Issue
  5,pp 367 384
• Integrated Assessment, Vol. 3, No 4, 2002, pp.
  281-299

9
Model Characteristics Regions
10
Model Characteristics
11
Model Characteristics

• Representative Agent Max. lifetime Utility
• Market Actors reacts as price taker (only OPEC
  can influence oil price)
• CES production Utility functions
• Carbon free Backstop Technology as upper energy
  price bound
• Induced technological change energy efficiency
  increase due to RD expenditures
• Choice between consumption and savings determined
  by intertemporal substitution elasticity
• Capital international mobile, labour immobile
  (only within regions)
• Lump sum revenue redistribution by permit trading
  to emissions reducing country
• Armington Trade

12
Induced Technological Change
Profit function of sector j
Endogenous energy productivity
Yj Activity level of production sector j
Domestic production share of total production by
sector i
Value share of capital within capital-energy
composite
Value share of labor within capital-energy-labor
aggregate
Value share of material within capital-energy-labo
r material aggregate
pj Price of domestic good j
pfx Price of foreign exchange (exchange rate)
? Substitution Elasticities
prk Price of capital
Price of energy
13
Induced Technological Change
RD expenditures (KRD) improve innovations in
more energy efficient technologies
Profit function of activity K in time period t
Kt Activity level of capital in period t
Price of capital in period t
Price of capital services in period t
? Capital survival share
t Time solution parameter
d Depreciation rate
?, Time lag parameter
Price of regional protection
costs
Price of regional RD investments
14
Induced Technological Change
Investments are produced by Leontief
technology Value share investment of
good j It Activity level of investments in
period t RD investments follow the same
determination
15
Model Results

• Meeting emission reduction targets is costly for
  those regions facing real emissions reductions,
  i.e. Europe, USA and Japan
• Induced technological change leads to emissions
  reduction options that can be reached with less
  production drawbacks
• Investment in RD and in technological innovation
  gives a comparative advantage
• Technological spill over effects lead also to
  improved terms of trade effects

16
Model Results
17
Model Results
18
Model Results
19
Conclusion

• Cooperation on climate control and RD among
  Annex B countries induces technological
  innovations, lowers their compliance costs gt
  places less strong economic burden
• Developing countries also benefit from improved
  trade effects and spillover effects of Annex B
  countrys technological innovations
• Overall global environmental effectiveness is
  increased markedly in comparison with the Kyoto
  scenario
• Additional RD investment leads to further
  emissions reductions in DCs
• Win-win-win outcomes for both developing
  countries and industrialized countries and for
  the global environment