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Climate agreements and policy


This World Bank research focuses on better understadning on the conditions under which international agreements and policies could be successful.

Contact: Mike Toman,


 Research focusResearch outputs | Researchers 

In accordance with the principle of "common but differentiated responsibility" of the UN Framework Convention on Climate Change (UNFCCC, 1992), the Kyoto Protocol (1997) imposes no greenhouse gases emission commitments on developing countries for 2008-2012. However, meeting the UNFCCC ultimate objective to “stabilize greenhouse gas concentrations in the atmosphere at a level that would prevent dangerous anthropogenic interference with the climate system” requires that action be taken in all major emitting countries, including the United States and the larger developing countries. Failure to do so would in turn put the stability of the current coalition at great risk.

The Kyoto Protocol allows countries to meet treaty obligations by investing in projects that reduce or sequester greenhouse gases elsewhere. Prior to ratification, treaty participants agreed to launch country-based pilot projects, referred to collectively as Activities Implemented Jointly (AIJ), to test novel aspects of the project-related provisions.

 Research outputs
"Contrasting future paths for an evolving global climate regime," S. Barrett, M. Toman, World Bank Policy Research Working Paper 5164, January 2010.

This paper explores two different conceptions of how an emerging climate regime might evolve to strengthen incentives for more vigorous cooperation in mitigating global climate change. One is the paradigm that has figured most prominently in negotiations to this point: the establishment of targets and timetables for countries to limit their aggregate greenhouse gas emissions. The other approach consists of a variety of loosely coordinated smaller scale agreements, each one of which addresses a different aspect of the challenge, and is enforced in its own way. The primary conclusion is that an agreement of the first type may be more cost-effective, but that a system of agreements of the second type would likely sustain more abatement overall.


"Trade in 'virtual carbon' : empirical results and implications for policy," G. Atkinson, K. Hamilton, G. Ruta and D. Van Der Mensbrugghe, World Bank Policy Research Working Paper 5194, January 2010.

The fact that developing countries do not have carbon emission caps under the Kyoto Protocol has led to the current interest in high-income countries in border taxes on the "virtual" carbon content of imports. The authors use Global Trade Analysis Project data and input-output analysis to estimate the flows of virtual carbon implicit in domestic production technologies and the pattern of international trade. The results present striking evidence on the wide variation in the carbon-intensiveness of trade across countries, with major developing countries being large net exporters of virtual carbon. The analysis suggests that tax rates of $50 per ton of virtual carbon could lead to very substantial effective tariff rates on the exports of the most carbon-intensive developing nations.

"A Polycentric Approach for Coping with Climate Change," Elinor Ostrom, World Bank Policy Research Working Paper 5095, October 2009.

This paper proposes an alternative approach to addressing the complex problems of climate change caused by greenhouse gas emissions. The author, who won the 2009 Nobel Prize in Economic Sciences, argues that single policies adopted only at a global scale are unlikely to generate sufficient trust among citizens and firms so that collective action can take place in a comprehensive and transparent manner that will effectively reduce global warming. Furthermore, simply recommending a single governmental unit to solve global collective action problems is inherently weak because of free-rider problems. For example, the Carbon Development Mechanism (CDM) can be ‘gamed’ in ways that hike up prices of natural resources and in some cases can lead to further natural resource exploitation. Some flaws are also noticeable in the Reducing Emissions from Deforestation and Forest Degradation in Developing Countries (REDD) program. Both the CDM and REDD are vulnerable to the free-rider problem. As an alternative, the paper proposes a polycentric approach at various levels with active oversight of local, regional, and national stakeholders. Efforts to reduce global greenhouse gas emissions are a classic collective action problem that is best addressed at multiple scales and levels. Given the slowness and conflict involved in achieving a global solution to climate change, recognizing the potential for building a more effective way of reducing green house gas emissions at multiple levels is an important step forward. A polycentric approach has the main advantage of encouraging experimental efforts at multiple levels, leading to the development of methods for assessing the benefits and costs of particular strategies adopted in one type of ecosystem and compared to results obtained in other ecosystems. Building a strong commitment to find ways of reducing individual emissions is an important element for coping with this problem, and having others also take responsibility can be more effectively undertaken in small- to medium-scale governance units that are linked together through information networks and monitoring at all levels. This paper was prepared as a background paper for the 2010 World Development Report on Climate Change.

"Factors Affecting Levels of International Cooperation in Carbon Abatement Projects," A. Dinar, S. M. Rahman, D. Larson, and P. Ambrosi, World Bank Policy Research Working Paper 4786, 2008.

The Clean Development Mechanism, a provision of The Kyoto Protocol, allows countries that have pledged to reduce their greenhouse gas emissions to gain credit toward their treaty obligations by investing in projects located in developing (host) countries. Such projects are expected to benefit both parties by providing low-cost abatement opportunities for the investor-country, while facilitating capital and technology flows to the host country. This paper analyzes the Clean Development Mechanism market, emphasizing the cooperation aspects between host and investor countries. The analysis uses a dichotomous (yes/no) variable and three continuous variants to measure the level of cooperation, namely the number of joint projects, the volume of carbon dioxide abatement, and the volume of investment in the projects. The results suggest that economic development, institutional development, the energy structure of the economies, the level of country vulnerability to various climate change effects, and the state of international relations between the host and investor countries are good predictors of the level of cooperation in Clean Development Mechanism projects. The main policy conclusions include the importance of simplifying the project regulation/clearance cycle; improving the governance structure of host and investor countries; and strengthening trade or other long-term economic activities that engage the countries.

"Carbon Markets, Institutions, Policies, and Research," D. F. Larson, P. Ambrosi, A. Dinar, S. Mahfuzur Rahman, R. Entler, World Bank Policy Research Working Paper 4761, 2008.

The scale of investment needed to slow greenhouse gas emissions is larger than governments can manage through transfers. Therefore, climate change policies rely heavily on markets and private capital. This is especially true in the case of the Kyoto Protocol with its provisions for trade and investment in joint projects.

This paper describes institutions and policies important for new carbon markets and explains their origins. Research efforts that explore conceptual aspects of current policy are surveyed along with empirical studies that make predictions about how carbon markets will work and perform. The authors summarize early investment and price outcomes from newly formed markets and point out areas where markets have performed as predicted and areas where markets remain incomplete. Overall the scale of carbon-market investment planned exceeds earlier expectations, but the geographic dispersion of investment is uneven and important opportunities for abatement remain untapped in some sectors, indicating a need for additional research on how investment markets work. How best to promote the development and deployment of new technologies is another promising area for study identified in the paper.


"Will markets direct investments under the Kyoto Protocol?" D. Larson and G. Breustedt, World Bank Policy Research Working Paper 4131, 2007.

Relying on a ten-year history of jointly implemented projects, this study investigated the determinants of AIJ investment. Findings suggest that national political objectives and possibly deeper cultural ties influenced project selection. This characterization differs from the market-based assumptions that underlie well-known estimates of cost-savings related to the Protocol’s flexibility mechanisms. It was estimated that if approaches developed under the AIJ programs to approve projects are retained, benefits from Kyoto’s flexibility provisions will be less than those widely anticipated.


Last updated: 2009-10-22

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