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This paper investigates the economic incentives of countries to cooperate on international adaptation financing. Adaptation is generally implicitly incorporated in the climate change damage functions as used in Integrated Assessment Models. We replace the implicit decision on adaptation with explicit adaptation in a multi-regional setting by using an adjusted RICE model. We show that making adaptation explicit will not affect the optimal mitigation path when adaptation is set at its optimal level. Sub-optimal adaptation will, however, change the optimal mitigation path. Furthermore this paper studies for different forms of cooperation what effects international adaptation transfers will have on (i) domestic adaptation and (ii) the optimal mitigation path. Adaptation transfers will fully crowd out domestic adaptation in a first best setting. Transfers will decrease overall mitigation in our numerical simulations. An analytical framework is used to analyse the most important mechanisms and a numerical model is used to assess the magnitude of effects.

The Global Integrated Sustainability Model (GISMO), developed at the Netherlands Environmental Assessment Agency (PBL), is a platform for analysing the complexity of sustainable development and human well-being with regards to the three sustainability domains: People, Planet, and Profit (PPP). The economic structure of the GISMO1.0 model is the International Futures model, developed at the University of Denver. To better address price behaviour in the model, the Computable General Equilibrium (CGE) model DART, developed by the Kiel Institute for the World Economy, was included in the GISMO framework and integrated with the International Futures model. The DART model is tuned to the needs of the GISMO project, and is further referred to as DART-PBL. This report provides an overview of the main changes and additions to the original DART model. The changes and additions include: 1) region and sector aggregation compatible with the GISMO framework; 2) human capital accumulation based on demographics, educational attainment and health level to better address human well-being; 3) introduction of a Linear Expenditure System to distinguish between basic and luxury consumption; 4) adjusted savings to take into account different saving patterns of a changing population structure; 5) heterogenic land prices linked with the IMAGE framework to address land scarcity and environmental impacts; and 6) partial labour mobility between agricultural and non-agricultural sectors, to assess changes in income distribution.

In this paper analyze the economic effects of CO2 emission reductions in the Basque Country (Spain) using an applied general equilibrium (AGE) model with specific attention to environment-energy-economy interactions. Environmental policy is implemented through a system of tradable pollution permits that the government auctions. The costs of different levels of CO2 abatement are discussed, focusing on the variations of macroeconomic, sectoral and environment-energy variables. Results show that the costs for achieving the Kyoto targets can remain limited if the appropriate combination of changes in fuel-mix and restructuring of the economy is induced. Impacto económico del control del cambio climático en el País Vasco Resumen En este trabajo analizamos el impacto económico de una reducción de las emisiones de CO2 en el País Vasco. Para ello utilizamos un modelo de equilibrio general aplicado (MEGA), que presta especial atención a las interacciones entre economía, medio ambiente y energía y que implementa la política ambiental mediante un mercado de permisos de emisión regulado por el gobierno. El artículo discute el coste de reducción de diferentes niveles en las emisiones, mostrando las variaciones en las principales variables macroeconómicas, sectoriales y energéticas. Los resultados muestran que los costes de cumplir los objetivos de Kyoto pueden ser moderados, si se consiguen inducir los cambios apropiados en el mix energético y en las estructuras de producción y consumo. Palabras clave: Modelos de Equilibrio General Aplicado; Cambio Climático; Mercados de Permisos de Emisión, País Vasco

Economic models suggest that in many cases, market leakage rates of greenhouse gas abatement reach the two-digit percentage range. Consequently, the Marrakesh Accords require Clean Development Mechanism (CDM) projects to account for leakage. Despite this, most project proponents neglect market leakage for their project, because the influence of an individual project on market prices seems to be negligible. Insufficient leakage accounting is facilitated by a lack of theories and applicable proposals regarding the quantification and attribution of leakage effects. The aim of this paper is to develop a proposal for the attribution of market leakage effects to CDM projects. To this purpose, we identify the transmission mechanisms for CDM project leakage, investigate the current practice of leakage accounting, and analyse alternative attribution methods for leakage effects that are transmitted through price changes. We find that project-specific approaches must fail to take account of such leakage effects. Consequently, we propose to estimate aggregate market leakage effects and attribute them proportionally to individual projects. Our proposal is based on commodity-specific leakage factors which can be applied by project developers to any emission reductions that are associated with a project?s leakage-relevant demand or supply changes. The proposal is conservative, equitable, incentive compatible and applicable at manageable costs.

This paper studies the effect of different treaty designs on the success of international environmental agreements (IEAs). We analyze the standard assumption of an efficient abatement scheme and three uniform abatement quota schemes. Apart from analytical results, the analysis is supported by simulations based on the STACO model. It turns out that quota agreements where the members decide by majority or unanimity voting are particularly successful in overcoming free-rider incentives within an IEA. Finally, our results provide a rationale for the application of uniform abatement quotas in IEAs.