Since the beginning of industrialization, many developed economies have increased their industrial production and this leads to the increase in greenhouse gas (GHG) emissions. The increased emissions have shown adverse effects on our natural environment through the· process of climate change. In particular, developing and impoverished countries will face serious consequences from unmitigated climate change. Further, the problem of asymmetric information in identifying the emitters and sufferers of emission needs global attention. For these reasons, international cooperation is essential and the United Nations Framework on Climate Change (UNFCCC) was formulated. Under the UNFCCC banner, the Kyoto Protocol was established in which industrialized countries committed themselves to reducing their emission levels collectively to 5% below their 1990 base year levels. Three mechanisms have been established under the Kyoto Protocol and they are the Joint Implementation Mechanism (JI), the Clean Development Mechanism (CDM) and the international Emission Trading Mechanism (lET).
This project discusses the study by Ellerman and Decaux (1998) who utilize the concept of Marginal Abatement Cost (MAC) curves to explain emission cost reductions under the lET. They conclude that any form of emission trading is better than no trading at all and that the larger the size of the market (including developing countries) the less costly is the process to reduce emissions. Additionally, this project reviews literature pertaining to emission reduction and technology transfer under the CDM presented in Seres, Haites and Murphy (2009) and Haites, Duan and Seres (2006). It can be concluded that the CDM shows transfer of pollution abatement technologies and emission reduction in a cost effective manner but fail to achieve sustainable development in developing countries. Finally, theoretical literature explaining the importance of environmental Research Joint Ventures (RJVs) is discussed. Conclusions presented in this section are potentially important for developing countries when accepting proposals for CDM projects. Generally, only when the information spillover parameter is high (~>0.5) does it make sense for a developing country to venture into a RJV.