Evaluation of the design and implementation of climate change mitigation policies in developing countries

Abstract

The wide recognition of the fact that institutions may have imperfections that lead to resource degradation constitutes a clear call for the evaluation of existing institutions, the improvement of imperfect ones or the design of new ones. This thesis used the mechanism design theory (MDT) framework to evaluate the design and implementation of environmental policies with respect to climate change mitigation, promotion of green technologies, and forest management policies. Specifically, this study attempted to:

1. Compare transaction cost effects with asymmetric information effects on the supply response of developing countries to the clean development mechanism (CDM)

2. Compare the pollution-haven (initial CO2 endowment) effect with clean business climate effect on the supply response of developing countries to the CDM

3. Compare capital discount with fiscal discount used as instruments to promote adoption of green technologies

4. Evaluate the suitability of the forest co-management system introduced in Benin as successful REDD strategy

5. Distill lessons for improved policy and institutional interventions for climate mitigation in developing countries in general and Benin in particular Four hypotheses have been advanced to achieve above stated objectives. Analytical and empirical analyses results were obtained corresponding to these hypotheses.

First, the principal-agent framework was used to construct and test for the significance of a criterion measuring the difference between transaction cost effect and asymmetric information effect on developing countries’ supply response to the CDM. Using data from the World Bank and UNFCCC surveys, the study found that for a wide range of technological gap, transaction costs effect dominates asymmetric information effect in impeding small developing countries from supplying credits of emission reduction as expected by the CDM.

Second, the study employed dynamic optimization to test the significance of the difference between the pollution-haven effect and the business climate effect on developing countries’ supply response to CDM. Our empirical results showed that business climate effect dominated pollution haven effect for a large band of cost-efficiency gap. This confirms earlier findings that the CDM is biased favourably towards countries that have a clean business environment at its inception and as such does not fit all developing countries.

Third, the principal-agent framework was again used to compare capital discount scheme and fiscal discount scheme used to promote adoption of green technologies by firms. The results showed that under asymmetric information, capital costs and fiscal discounts are equivalent regarding efficiency, but that capital cost policy is more likely to have a broader reach within the context of developing countries.

Fourth, the study used contract theory to identify the flaws in the design of the contract between Government and local populations for co-managing forest resources in Benin. The results showed that the contract designed and implemented by the Government with local populations in Benin context was flawed. Especially, the compensations of the monitors don’t fit the crime.

From the above results, we derived policy implications concerning measures to make business environment friendlier, and Benin forest co-management policy more efficient.