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Incentives and effects of no-lose targets to include non-annex I countries in global emission reductions

: Duscha, Vicki; Ehrhart, Karl-Martin


Environmental & resource economics 65 (2016), Nr.1, S.81-107
ISSN: 0924-6460
ISSN: 1573-1502
Fraunhofer ISI ()
emissions trading; no-lose targets; profitability; Non-Annex I countries; Post-Kyoto

We analyze the potential of no-lose targets used as an instrument to integrate non-Annex I countries in global emission reduction efforts. We set up a game-theoretical model to derive the participation conditions for a non-Annex I country and evaluate the effect of a no-lose target on the reduction of global emissions. Our analyses show that meaningful contributions from non-Annex I countries are possible, but their contribution to global emission reductions is limited and depends on several factors. Ambitious targets for the Annex I countries are a precondition. Further determining factors are differences in the abatement potentials between Annex I and non-Annex I countries, and market power on the certificate market. Nonetheless, in contrast to other funding mechanisms, no-lose targets, rather than requiring additional funding, can actually reduce costs for the Annex I countries.