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Emissions trading mechanisms have been proposed, and in some cases implemented, as a tool to reduce pollution. We explore the similarities between emission-trading mechanisms and monetary mechanisms. Both attempt to implement desirable allocations under various frictions, including risk and private information. In addition, implementation relies on the issue and trading of objects whose value is at least partially determined by expectations, namely money and permits, respectively. We use insights from dynamic mechanism design in monetary economics to derive properties of dynamic emissions trading mechanisms. At the optimum, the price of permits must increase over time. Efficient tax policies are state-contingent, and there is an equivalence between state-contingent taxes and emissions trading. Restrictions resulting from the money-like feature of permits can break this equivalence when there is endogenous progress in clean technologies. These restrictions must be taken into consideration in actual policy implementation.

'Against all odds, the CDM has shown that market mechanisms for greenhouse gas reduction in developing countries can work. Nevertheless, as Paula Castro explains convincingly, the CDM is no "magic bullet". Advanced developing countries need to be "weaned off" the CDM in order to take up commitments, while the monetary incentive from emission credit sales is insufficient to put least developed countries on a low-emission pathway. However, experience from the CDM remains critical in designing new market mechanisms.' - Axel Michaelowa, University of Zurich, Switzerland. In this groundbreaking book, Paula Castro presents the first systematic categorization of positive and negative incentives generated by the Clean Development Mechanism (CDM) for climate change mitigation in the Global South. To reduce the cost of meeting their greenhouse gas emission reduction commitments under the Kyoto Protocol, industrialized countries may rely on the CDM, a market instrument that allows them to count emission reductions from projects in developing countries as their own. Presented in four core empirical chapters, the book critically reviews whether and how the CDM creates incentives or disincentives for developing country action towards reducing greenhouse gas emissions, and draws lessons for the future international climate change regime. Recommendations and discussion on the reform of the CDM invoke debate on the future of this policy in developing countries, which is vital material for both policymakers and international institutions introducing similar instruments. Students and researchers working on topics related to environmental politics, climate policy, environmental economics and environmental science will also find this resource invaluable

This paper proposes the transformed maximum likelihood estimator for short dynamic panel data models with interactive fixed effects, and provides an extension of Hsiao et al. (2002) that allows for a multifactor error structure. This is an important extension since it retains the advantages of the transformed likelihood approach, whilst at the same time allows for observed factors (fixed or random). Small sample results obtained from Monte Carlo simulations show that the transformed ML estimator performs well in finite samples and outperforms the GMM estimators proposed in the literature in almost all cases considered.

The Clean Development Mechanism, defined in Article XII of the Kyoto Protocol to the UN Framework Convention on Climate Change, is a crucial instrument to enlist developing countries' participation in emissions limitation, to reduce industrialized countries' compliance costs, & to facilitate resource & technology transfers. However, the CDM contains perverse compliance incentives & is beset with problems of credit definition, monitoring, enforcement, & potentially high transactions costs. This paper defines some important design safeguards & suggests an alternative approach should the Kyoto Protocol eventually be renegotiated. 1 Appendix, 42 References. Adapted from the source document.