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Objectives

Strategic objectives of the project are:

The first objective of the TETRIS project is to explore the technology transfer related to the implementation of the Kyoto mechanisms in developing and the EU accession countries. Behind most transactions in emissions trading markets, there is a technology transfer or implementation that allows the reduction of GHG emissions. We will analyze how the Kyoto flexible mechanisms can initiate or facilitate technology transfer (TT) to developing or transition countries. Key determinants of TT will be identified from the literature on technology transfer written by commercial companies, government agencies, and multinational organizations. Case studies of real projects undertaken under early greenhouse gas trading initiatives (AIJ program, World Bank Prototype Carbon Fund, Senter) will describe types of technology that can be transferred and the host countrys benefits. Critical factors such as the crediting period will be explored and illustrated using real data from the case studies. We will analyse the potential for TT in several other large potential CDM host countries, such as Brazil and China.

The second objective is the incorporation of investment risk into the analysis of ET markets. The risks of investment in climate change mitigation are substantial, but often ignored in analyses of climate policy and emissions trading. To quantify these risks, we will develop indicators of investment climate for GHG abatement projects for the main seller countries. These indicators shall describe the costs and risks of investments in climate change mitigation in a comprehensive manner, taking into account macroeconomic stability, the institutional environment for JI and CDM and political risk. These indicators will be integrated into quantitative analysis at a later stage.

The third objective of the project is to examine to what extent other GHG emissions trading schemes are compatible with the European emissions trading scheme, and identify potential problems of integrating them. The analysis will cover trading systems in two groups of countries: European countries which are not members of the EU, like Switzerland and Norway, and countries outside Europe which are crucial for the implementation of the Kyoto Protocol, like Japan and Canada. The key problem is the fundamental difference between the design of national climate policies and ET systems. Climate policy in Switzerland, for example, is a combination of carbon taxes, voluntary agreements, and emissions trading. Whether this complicated system can be linked to the EU ETS and whether the Swiss allowances can be considered equivalent to EU allowances remains to be seen.

The fourth objective is the quantification of the economic and industrial impacts of international emissions trading using an established large-scale multi-region multi-sector computable general equilibrium model of international trade and energy use. This model represents the analytical backbone of our project and will be extended in several steps to accommodate adequate quantitative analysis of the above mentioned policy issues. In a first step, the European market for tradable CO2 allowances as envisaged under the EU Directive will be modelled in detail. The impact analysis of the EU trading scheme will serve as a benchmark for the investigation of JI and CDM. In a second step, the model will be extended to represent a world-wide ET system (including JI and CDM mechanisms) encompassing transition and developing countries under realistic conditions (including investment risks and transaction costs). The comprehensive ET system will then be compared to the benchmark case. Integrating JI and the CDM is expected to further enhance the cost effectiveness of emissions trading. Moreover we are interested in the industrial impacts (by sectors), allowance prices, and, particularly, the impact of investment risk on the magnitude and regional distribution of emissions trading.