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Prospects for Markets for Internationally Transferred Mitigation Outcomes under the Paris Agreement

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dc.contributor.authorStrand, Jon
dc.date.accessioned2022-05-19T18:03:58Z
dc.date.available2022-05-19T18:03:58Z
dc.date.issued2022-05
dc.description.abstractThe Paris Agreement provides for parties to use internationally transferred mitigation outcomes in implementing their Nationally Determined Contributions. This paper analyzes forward trading of these outcomes in the presence of two forms of uncertainty: (1) uncertainty about the fulfillment of Nationally Determined Contribution targets, and (2) uncertainty about the existence and functioning of the forward, options, and future spot markets markets for internationally transferred mitigation outcomes. When parties can sell and buy internationally transferred mitigation outcomes forward, access to call options for late purchases leads to correspondingly larger forward sales, or less current mitigation. Access to put options for late internationally transferred mitigation outcome sales does not affect forward trading outcomes but increases late sales for net sellers. Access to options markets is welfare enhancing for all parties, and call options help parties stay in compliance with their Nationally Determined Contributions at the Paris Agreement end point, 2030. The existence of internationally transferred mitigation outcome markets may be in peril, however, as banking beyond 2030 is not allowed. The availability and functioning of internationally transferred mitigation outcome markets can be enabled or improved by increased climate finance provided by donors. With no options markets, host countries will still sell internationally transferred mitigation outcomes forward, albeit less so, and rely on access to more expensive “backstop” mitigation for ex-post compliance with their Nationally Determined Contributions. Closed-form solutions are derived for trading and its welfare impacts in all the option contract alternatives, given that parties’ uncertainties about fulfilling their commitments are uniformly distributed. The welfare impact of the availability of put and call option contracts is then strongly increasing in uncertainty, and in ex-post and forward outcome prices.en
dc.identifierhttp://documents.worldbank.org/curated/en/099552405162236712/IDU0f7638e1c0b51d04e62091b30b30c5caa8a55
dc.identifier.doi10.1596/1813-9450-10045
dc.identifier.urihttps://hdl.handle.net/10986/37457
dc.languageEnglish
dc.publisherWorld Bank, Washington, DC
dc.relation.ispartofseriesPolicy Research Working Papers;10045
dc.rightsCC BY 3.0 IGO
dc.rights.holderWorld Bank
dc.rights.urihttp://creativecommons.org/licenses/by/3.0/igo
dc.subjectPARIS AGREEMENT
dc.subjectNATIONALLY DETERMINED CONTRIBUTIONS
dc.subjectCLIMATE FINANCE
dc.subjectINTERNATIONALLY TRANSFERRED MITIGATION OUTCOME (ITMO)
dc.subjectOPTIONS CONTRACTS
dc.subjectFORWARD CONTRACTING
dc.subjectCARBON MARKET
dc.subjectEMMISION REDUCTION
dc.subjectCLIMATE CHANGE
dc.subjectGLOBAL WARMING
dc.titleProspects for Markets for Internationally Transferred Mitigation Outcomes under the Paris Agreementen
dc.typeWorking Paperen
dc.typeDocument de travailfr
dc.typeDocumento de trabajoes
dspace.entity.typePublication
okr.date.disclosure2022-05-16
okr.date.lastmodified2022-05-16T00:00:00Zen
okr.doctypePolicy Research Working Paper
okr.doctypePublications & Research
okr.docurlhttp://documents.worldbank.org/curated/en/099552405162236712/IDU0f7638e1c0b51d04e62091b30b30c5caa8a55
okr.guid099552405162236712
okr.identifier.doi10.1596/1813-9450-10045
okr.identifier.externaldocumentum33819706
okr.identifier.internaldocumentum33819706
okr.identifier.reportWPS10045
okr.importedtrueen
okr.language.supporteden
okr.pdfurlhttp://documents.worldbank.org/curated/en/099552405162236712/pdf/IDU0f7638e1c0b51d04e62091b30b30c5caa8a55.pdfen
okr.topicEnvironment::Carbon Policy and Trading
okr.topicEnvironment::Adaptation to Climate Change
okr.topicEnvironment::Climate Change Mitigation and Green House Gases
okr.topicMacroeconomics and Economic Growth::Climate Change Economics
okr.topicPublic Sector Development::Climate Change Policy and Regulation
okr.unitDEC-Sustainability & Infrastruct (DECSI)
relation.isAuthorOfPublicationc9d5219c-9076-5386-b0d2-03bab820c61d
relation.isAuthorOfPublication.latestForDiscoveryc9d5219c-9076-5386-b0d2-03bab820c61d
relation.isSeriesOfPublication26e071dc-b0bf-409c-b982-df2970295c87
relation.isSeriesOfPublication.latestForDiscovery26e071dc-b0bf-409c-b982-df2970295c87
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