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Climate Finance

Regulatory and Funding Strategies for Climate Change and Global Development

Richard Stewart, Benedict Kingsbury, Bryce Rudyk

Publication Year: 2009

Preventing risks of severe damage from climate change not only requires deep cuts in developed country greenhouse gas emissions, but enormous amounts of public and private investment to limit emissions while promoting green growth in developing countries. While attention has focused on emissions limitations commitments and architectures, the crucial issue of what must be done to mobilize and govern the necessary financial resources has received too little consideration. In Climate Finance, a leading group of policy experts and scholars shows how effective mitigation of climate change will depend on a complex mix of public funds, private investment through carbon markets, and structured incentives that leave room for developing country innovations. This requires sophisticated national and global regulation of cap-and-trade and offset markets, forest and energy policy, international development funding, international trade law, and coordinated tax policy.

Thirty-six targeted policy essays present a succinct overview of the emerging field of climate finance, defining the issues, setting the stakes, and making new and comprehensive proposals for financial, regulatory, and governance mechanisms that will enrich political and policy debate for many years to come. The complex challenges of climate finance will continue to demand fresh insights and creative approaches. The ideas in this volume mark out starting points for essential institutional and policy innovations.

Published by: NYU Press

Title Page, Copyright

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pp. iii-iv

Contents

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pp. v-ix

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Acknowledgments

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pp. xi-xii

This book is a result of the Climate Finance: Financing Green Development project of the Institute for International Law and Justice (IILJ) at New York University School of Law, undertaken jointly with NYU’s Frank Guarini Center on Environmental and Land Use Law (CELUL). Th e project has received very generous support and encouragement from the...

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Foreword: NYU Abu Dhabi and the Sustainable Environment

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pp. xiii-xiv

This book is the first volume of policy papers issuing from the NYU Abu Dhabi Institute. It demonstrates NYU Abu Dhabi’s commitment to scholarship on matters that have critical significance in the world today. And we consider it fitting, with the selection of Abu Dhabi as home for the International Renewable Energy Agency and the ground-breaking work...

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Summary of Key Findings and Recommendations

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pp. xv-xvi

Meeting the imperative of achieving major reduction in greenhouse gas emissions in developing as well as developed countries, without sacrificing urgently needed development, requires far greater attention to the emerging subject of climate finance than it has yet received. To achieve the necessary mitigation of climate change in developing countries,...

About the Contributors

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pp. xvii-xxi

Part I. Climate Change and Mitigation: Overview and Key Themes

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pp. 1-

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Chapter 1 Climate Finance for Limiting Emissions and Promoting Green Development: Mechanisms, Regulation, and Governance

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pp. 3-34

Climate finance is a critical element of global climate policy that has received far less attention than emissions limitations and climate regulatory architectures. This book redresses this deficit. It focuses on what is required to meet the need for vastly increased funding for climate mitigation and green development in developing countries. It presents new...

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Chapter 2 Understanding the Causes and Implications of Climate Change

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pp. 35-41

...generation, transport, agriculture, and forestry are accumulating in the atmosphere, gradually altering the heat balance of the Earth and inevitably changing its climate. The greatest concern arises from long-lived gases (carbon dioxide, methane, halocarbons, and nitrous oxide) because they persist in the atmosphere for a period ranging from decades to longer...

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Chapter 3 The Climate Financing Problem: Funds Needed for Global Climate Change Mitigation Vastly Exceed Funds Currently Available

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pp. 42-47

...The latest assessment of the Intergovernmental Panel on Climate Change (IPCC) clearly shows that climate change risks will be manageable if global mean temperatures do not increase more than 2

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Chapter 4 The Future of Climate Governance: Creating a More Flexible Architecture

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pp. 47-52

...Everyone wants to learn from history, so as not to repeat it. But what are the lessons of the Kyoto Protocol? Although opinions diff er widely, a growing consensus accepts the need for greater flexibility in a new climate change agreement. The Kyoto Protocol targets cover only about one-quarter of global emissions. Perhaps the central challenge for a new climate...

Part II. Proposals for Climate Finance: Regulatory and Market Mechanisms and Incentives

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pp. 53-

A. Trading or Taxes?

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pp. 55-

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Chapter 5 Cap-and-Trade Is Preferable to a Carbon Tax

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pp. 57-64

First proposed in 1968, cap-and-trade came into its own in 1990 with the passage of the US Clean Air Act Amendments, which created an emissions trading system for sulfur dioxide emissions from electric power plants. That program has cut emissions in half at less than a third of the predicted cost, with overwhelming benefits to human health and ecosystems.1 Since then...

B. Reforming the Clean Development Mechanism (CDM)

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pp. 65-

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Chapter 6 Expectations and Reality of the Clean Development Mechanism: A Climate Finance Instrument between Accusation and Aspirations

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pp. 67-75

...unprecedented success. By June 2009, the CDM Executive Board (EB) registered more than 1,500 projects that are expected to create 1.6 billion tons of greenhouse gas (GHG) emission reductions by 2013. The CDM has attracted the interest of the private sector in industrialized and developing countries alike and built a global carbon market....

C. Sectoral Programs for Emissions Control and Crediting

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pp. 77-

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Chapter 7 Why a Successful Climate Change Agreement Needs Sectoral Elements

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pp. 79-84

...mitigation across a sector of the economy, rather than just on a project-by-project basis. There have been some early missteps along the way regarding what is meant by a sectoral approach, and it is notable that proposals for sectoral elements initially came mainly from developed countries. This has raised suspicions and clouded inclusion of sectoral elements in the...

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Chapter 8 Sectoral Crediting: Getting the Incentives Right for Private Investors

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pp. 85-89

...One important and innovative proposal in current climate policy discussions is to abandon the project-based Clean Development Mechanism (CDM) in favor of sectoral targets and crediting, at least for certain carbon- intensive sectors in countries that meet a variety of other criteria. Under this approach, no carbon credits would be issued for individual...

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Chapter 9 Forest and Land Use Programs Must Be Given Financial Credit in Any Climate Change Agreement

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pp. 90-95

...In light of the increasing understanding of the timing and depth of emissions reductions required to achieve a 2

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Chapter 10 Stock-and-Flow Mechanisms to Reduce Land Use, Land Use Change, and Forestry Emissions: A Proposal from Brazil

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pp. 96-101

...to reduce emissions caused by agriculture, land use, and deforestation. Recognizing this, there is strong support for emissions targets for the major emerging economies, significant finance and technology transfer from Annex I nations, and a stock-and-flow mechanism to create incentives to reduce land use, agriculture, and deforestation emissions....

D. Leveraging Trading to Maximize Climate Benefits

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pp. 103-

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Chapter 11 Mitigating Climate Change at Manageable Cost: The Catalyst Proposal

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pp. 105-110

...Realistic estimates for the funding needed to finance mitigation and adaptation activities in the developing world are in the range of €65 – 100 billion annually on average over the 2010 – 2020 period. This takes into account the range of abatement activities with moderate and large positive costs and the barriers to finance that will have to be dismantled or...

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Chapter 12 Engaging Developing Countries by Incentivizing Early Action

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pp. 111-121

...The world’s collective effort to curb climate change will rely heavily upon the global marketplace — the only force large and strong enough to drive the needed innovation and carry through the necessary reductions in greenhouse gases (GHG). This approach is being taken seriously around the world, as evidenced by the success of the European Union Emissions...

E. Linking Trading Systems

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pp. 123-

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Chapter 13 Carbon Market Design: Beyond the EU Emissions Trading Scheme

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pp. 125-131

...Much has been written about the European Union Emissions Trading System (EU ETS) and what it has demonstrated about the potential of carbon trading. It is generally acknowledged that the allocation process in the first period, pre-Kyoto, was uncoordinated, and as a result issued too many emissions allowances, giving rise to an embarrassing price collapse...

F. Investor Perspectives

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pp. 133-

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Chapter 14 Incentivizing Private Investment in Climate Change Mitigation

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pp. 135-142

...Leaders in many countries are seeking ways to reduce greenhouse gas (GHG) emissions; ever increasing attention is being focused on how the necessary reductions will be achieved. The challenge is significant; if the proposed cuts are to be achieved, the power sector must find new, clean ways of generating electricity; automobile fleets must be replaced with...

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Chapter 15 Investment Opportunities and Catalysts Analysis and Proposals from the Climate Finance Industry on Funding Climate Mitigation

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pp. 143-151

...It is clear significant support from private finance will have to be mobilized in order to meet the world’s mitigation and adaptation needs in the coming years. As matters currently stand, the right incentives are not in place for this to occur in sufficient volume to have the desired effect. A hospitable climate for low-carbon investment rests on two main pillars...

Part III. Bringing Developed and Developing Countries Together in Climate Finance Bargains: Trust, Governance, and Mutual Conditionality

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pp. 153-

A. Meeting Developing Country Climate Finance Priorities

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pp. 155-

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Chapter 16 Developing Country Concerns about Climate Finance Proposals: Priorities, Trust, and the Credible Donor Problem

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pp. 157-164

...While there is much variation among different developing and developed countries, overall there is a real North-South gap in climate negotiations. Current proposals on climate financing do not do enough to overcome the lack of trust and mutual credibility between developing and developed countries. This essay analyses the priorities and concerns of developing...

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Chapter 17 Developing Countries and a Proposal for Architecture and Governance of a Reformed UNFCCC Financial Mechanism

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pp. 165-171

...As has been highlighted in a number of chapters in this book, the engagement of developing countries is fundamental to the success of any post-2012 climate regime. Developing country engagement is inextricably linked to issues of governance and institutions. This link is an issue both legal as well as practical. It is a legal issue, because developing country...

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Chapter 18 Climate Change and Development: A Bottom-Up Approach to Mitigation for Developing Countries?

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pp. 172-178

...A top-down approach — specifically internationally specified and binding national targets and timetables — has long been the preferred position of environmental advocates. But bottom-up approaches, such as policy measures to be devised on a country-by-country basis, have also been part of the policy grammar of the climate negotiations. In the process...

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Chapter 19 Operationalizing a Bottom-Up Regime: Registering and Crediting NAMAs

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pp. 179-185

...Although the historical burden of climate change rests with Annex I countries, non – Annex I countries are assisting — in their own ways — with mitigating climate change. However, the current structure of the United Nations Framework Convention on Climate Change (UNFCCC) and Kyoto...

B. Conditionality and Its Governance

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pp. 187-

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Chapter 20 From Coercive Conditionality to Agreed Conditions: The Only Future for Future Climate Finance

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pp. 189-196

...finance. Most multilateral environmental agreements (MEAs) provide for the transfer of financial and technical resources from richer countries to poorer countries. These transfers serve the practical purpose of financing developing country capacity to implement projects and policy, and the political purpose of providing incentives for developing country participation...

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Chapter 21 Getting Climate-Related Conditionality Right

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pp. 197-205

...Conditionality has gotten a bad name in development finance. But it may be rehabilitated by the emerging climate change regime. Mitigating climate change by reducing emissions of greenhouse gases (GHGs) from developing countries will require substantial amounts of capital. Some of that capital will come from individuals or organizations who insist that...

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Chapter 22 Making Climate Financing Work: What Might Climate Change Experts Learn from the Experience of Development Assistance

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pp. 206-210

...At the heart of any global deal on climate change lies a compact between wealthy and less wealthy countries. The vast majority of industrialized countries have already accepted binding commitments to reduce their greenhouse gas (GHG) emissions (although few have made any progress to reducing emissions in practice). Future progress in limiting emissions...

Part IV. National Policies: Implications for the Future Global Climate Finance Regime

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pp. 211-

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Chapter 23 Climate Legislation in the United States: Potential Framework and Prospects for International Carbon Finance

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pp. 213-220

...On June 26, 2009, the US House of Representatives passed a sweeping bill that would reduce US greenhouse gas (GHG) emissions by 17% below 2005 levels by 2020, and 83% below 2005 levels by 2050. If the momentum from the House bill can be carried on through the Senate, the United States may at last be taking on meaningful domestic action, on the eve...

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Chapter 24 The EU ETS: Experience to Date and Lessons for the Future

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pp. 221-227

...Operating from 2005 to 2007, Phase I had a cap of 2.4 billion allowances per year. This first period was highly effective in making boardrooms aware of carbon risks and opportunities and stimulating the search for abatement opportunities. Further, the infrastructure of a functional, liquid market was successfully created. Phase I did, however, encounter problems. Allocations were...

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Chapter 25 Greenhouse Gas Emissions and Mitigation Measures in China

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pp. 228-233

...While China is currently responsible for 20% of global greenhouse gas (GHG) emissions, its per capita emissions levels are relatively low. As a result of its share of global emissions, industrialized nations have been pressuring China to adopt binding emissions caps. However, China has so far refused. Many may interpret China’s reluctance to commit to a binding...

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Chapter 26 Cities and GHG Emissions Reductions: An Opportunity We Cannot Afford to Miss

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pp. 234-240

...Urban areas consumed about two-thirds of the world’s energy in 2006. This is expected to increase to three-fourths by 2030. However, even in cities at similar levels of development, per capita urban energy use, and thus GHG emissions per capita, varies considerably. In light of this variation, would it be possible for governments to enact policies to promote...

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Chapter 27 A Prototype for Strategy Change in Oil-Exporting MENA States? The Masdar Initiative in Abu Dhabi

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pp. 241-243

...The debate around climate change and energy security is by now well known. A key issue facing our world today is how to tackle these challenges in a way that can sustain human progress and economic development, while at the same time safeguarding our environment and the future of our planet. It is clear there is no single answer to these challenges...

Part V. Climate Finance and World Trade Organization (WTO) Law and Policy

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pp. 245-

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Chapter 28 The WTO and Climate Finance: Overview of the Key Issues

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pp. 247-253

...Climate change, being such a broad issue, intersects with a number of areas of World Trade Organization (WTO) work, although the WTO’s primary focus is to fight distorting trade restrictions. It is often suggested that WTO rules will be in conflict with domestic actions taken under the United Nations Framework Convention on Climate Change (UNFCCC)...

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Chapter 29 Carbon Trading and the CDM in WTO Law

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pp. 254-258

...of these is a system of emissions trading among Annex I nations provided under Article 17, where countries with caps (calculated in assigned amount units, or AAUs) can reallocate the burden of abatement between them. Although the Protocol contains some general language regarding this system, including a requirement that Annex I Parties “strive to implement...

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Chapter 30 Countervailing Duties and Subsidies for Climate Mitigation: What Is, and What Is Not, WTO-Compatible?

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pp. 259-265

...climate change based on states binding themselves to reduce greenhouse gas (GHG) emissions to agreed levels, based on the notion of “common but diff erentiated responsibilities” for developed and developing countries. The Kyoto Protocol, however, does not specify the policies that states must use to achieve the bound emissions reductions, or the relevant...

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Chapter 31 Border Climate Adjustment as Climate Policy

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pp. 266-271

...Change (IPCC) findings is a daunting problem. It appears essential to regulate GHG emissions by putting a price, through a carbon tax or a cap-and-trade scheme, on tons of GHG emitted. Doing this through national regulation has the potential to cause “carbon leakage,” shifting GHG-intensive production (such as iron, steel, aluminum, pulp and paper...

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Chapter 32 Enforcing Climate Rules with Trade Measures: Five Recommendations for Trade Policy Monitoring

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pp. 272-280

...climate regime, or to level the playing field for businesses and avoid relocation and carbon leakage, or to punish non-compliant countries. It is possible that an international climate agreement may eventually authorize certain trade sanctions, as was done in the Montreal Protocol on the stratospheric ozone layer and for other environmental aims. New rules and...

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Chapter 33 Carbon Footprint Labeling in Climate Finance: Governance and Trade Challenges of Calculating Products’ Carbon Content

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pp. 281-287

...Yesterday, it was trans-fat; today, carbon footprint labels are proliferating on grocery store shelves. Carbon footprint labels purport to quantify the embodied carbon of a given product: the total quantity of carbon dioxide and (in some cases) other greenhouse gases (GHG) for which a single product — a pear, a cell phone, a t-shirt — is responsible over the course of...

Part VI. Taxation of Carbon Markets

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pp. 289-

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Chapter 34 Fiscal Considerations in Curbing Climate Change

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pp. 291-299

...Climate change abounds with fiscal issues. At a macro level, the debate between a carbon tax, cap-and-trade system, and command-and-control regulation is about the extent to which the tax system is the best vehicle to address climate policy objectives. At a micro level, energy-related fiscal incentives and the tax treatment of carbon taxes, carbon permits, and...

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Chapter 35 Tax and Efficiency under Global Cap-and-Trade

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pp. 300-304

...A cap-and-trade regime relies on the price of permits to signal which abatement opportunities are cost-effective, in light of the overall cap. Just like any market where we use price signals to achieve allocative efficiency, taxation is a looming problem. To the extent that taxes distort prices, the market will not function optimally, impairing the efficiency of the regulatory system. The...

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Chapter 36 Tax Consequences of Carbon Cap-and-Trade Schemes: Free Permits and Auctioned Permits

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pp. 305-310

...The cap-and-trade system creates a new asset — the permit. The tax treatment of permits can potentially distort the tradeoffs that sources make between abating or holding permits to cover their emissions, and thereby impair the efficiency of the regulatory system. This chapter first outlines the appropriate general income tax treatment of permits. It then addresses...

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Afterword: Reflections on a Path to Effective Climate Change Mitigation

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pp. 311-315

...There are many challenges along the path to a meaningful climate policy framework, but two stand out as particularly threatening. The first is uncertainty. More specifically, there is a serious risk that nations will not under take meaningful action because of the persistence of uncertainty surrounding the relative cost and effectiveness of policies designed to mitigate...

Abbreviations

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pp. 317-319

Index

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pp. 321-323


E-ISBN-13: 9780814786574
E-ISBN-10: 081478657X
Print-ISBN-13: 9780814741382
Print-ISBN-10: 081474138X

Page Count: 352
Publication Year: 2009

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Subject Headings

  • Climatic changes -- Government policy.
  • Climatic changes -- Economic aspects.
  • Economic development -- Environmental aspects.
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