The Korean Economic Review
Roles of Flexible Mechanisms in International Environmental Agreements
Jeongmeen Suh (Soongsil University) and Myeonghwan Cho (University of Seoul)Year 2017Vol. 33No. 2
Abstract
This paper focuses on the roles of flexible mechanisms in international environmentalagreements (IEAs) and investigates the possibility of IEAs to achieve globally optimaltransboundary pollution reduction. We first demonstrate that emission trading does notensure the globally optimal outcome. Then, by introducing the investing schemes (JointImplementation and Clean Development Mechanism) together with Emissions Trading, wealso show that the global optimum can be achieved under a properly designed cost-sharingrule. Moreover, there exists an initial permit allocation with which every country can bebetter off through the flexible mechanisms. This finding implies that the countries can reachan agreement that can help achieve the globally optimal outcome.