Working Paper: CEPR ID: DP7394
Authors: Valentina Bosetti; Carlo Carraro; Massimo Tavoni
Abstract: This paper builds on the assumption that OECD countries are (or will soon be) taking actions to reduce their greenhouse gas emissions. These actions, however, will not be sufficient to control global warming, unless developing countries also get involved in the cooperative effort to reduce GHG emissions. This paper investigates the best short-term strategies that emerging economies can adopt in reacting to OECD countries? mitigation effort, given the common long-term goal to prevent excessive warming without hampering economic growth. Results indicate that developing countries would incur substantial economic losses by following a myopic strategy that disregards climate in the short-run, and that their optimal investment behaviour is to anticipate the implementation of a climate policy by roughly 10 years. Investing in innovation ahead of time is also found to be advantageous. The degree of policy anticipation is shown to be important in determining the financial transfers of an international carbon market meant to provide incentives for the participation of developing countries. This is especially relevant for China, whose recent and foreseeable trends of investments in innovation are consistent with the adoption of domestic emission reduction obligations in 2030.
Keywords: climate policy; developing countries; energy-economy modeling
JEL Codes: Q43; Q54; Q55
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| policy anticipation (D84) | investment strategies (G11) |
| myopic strategy (L21) | economic losses (F69) |
| optimal investment behavior (G11) | better economic outcomes (P17) |
| policy anticipation (D84) | technology adoption (O33) |
| early investment in low-carbon technologies (Q55) | reduced costs (D61) |
| policy anticipation (D84) | financial transfers in carbon market (F16) |