Joint Implementation in the region around the Baltic Sea Region. Economic and energy political perspectives

The project is based on desk research and focus is put on the energy sectors of the five countries. Data collection and forecasts are carried out for 1995 to 2012. The two main themes of the project focus on the following basic questions: 1. How can criteria be formulated and which organizational designs can be outlined in order to ensure the practicability of the implementation of JI projects and the environmental additionality of the JI mechanism? 2. How is a JI supply formulated and to which extent is it possible to estimate a JI supply in connection with the appraisal of a number of energy projects as potential JI projects? The first question is answered by the presentation and discussion of basic criteria found in the Kyoto Protocol and the discussion of the criteria is subsequently amplified staring from the existing JI literature. In particular the additionality criterion is discussed and a practical approach to environmental additionality of projects has been elaborated. Further, transaction costs and possible organizational designs of JI are analyzed and discussed. In summary, it may be concluded that it is possible to establish a set of simple and transparent rules and criteria for the additionality appraisal, so that the burden for JI investors is limited. JI specific transactions costs are only limited in relation to medium and large projects. In relation to small projects JI transaction costs will typically constitute a larger amount of the total investment costs. The organizational designs of JI are likely to appear in various forms, since the preferences and motivations of actors and authorities differ. Thus, it is most likely that both bilateral systems and systems based on clearinghouses will appear in the future. The second question has been answered based on the macroeconomic and energy political development of the four host countries. Focus is on the energy sectors, and the baseline CO2 emissions are evaluated based on very ambitious CO2 abatement policies. Even in a scenario with ambitious CO2 reductions there is a potential of JI energy projects. The problem with the implementation of these projects is that as energy sector projects they are typically capital intensive. Initially, it was assumed that Danish JI investors face a trade-off between CO2 reduction in Denmark and CO2 reduction through JI abroad. However, from the project analyses it became clear that in reality the CO2 reduction in JI projects only constitutes a small part of the project economy. Furthermore, sensitivity analyses underlined that traditional parameters (energy prices, tariffs and investments) have a large impact on project risk and income, whereas the CO2 related parameters (CO2 baseline, CO2 shadow price) only have a limited impact on project risk and income. Thus, it can be concluded that JI provides no basis for the motivation of investors by the potential for CO2 credits. Insted, the motivation for JI is based on normal business interests, as would be the case with ordinary energy projects