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International Mitigation Finance: Carbon Mitigation, Welfare, and Optimal Recipient Design
December 6, 2023 @ 3:00 pm – 4:00 pm
Speaker: Naixin Huang, Ph.D. Candidate in Economics, Tsinghua University; Harvard-China Project Fellow
International mitigation finance is a primary way in global climate cooperation to limit fast-growing carbon emissions of developing countries. Using a multi-country-multi-sector quantitative trade model, we take the year 2017 as an example to estimate carbon mitigation and welfare effects from mitigation finance and explore its optimal recipient allocation. We find that 2017’s 44.2 billion USD mitigation finance can reduce 533 million tons of carbon emissions, or 1.5% of 2017’s world total. Each recipient country’s welfare increased and the total welfare of all providers increased. In addition, to maximize carbon mitigation, finance should be redistributed to a small number of countries with the lowest marginal mitigation cost instead of large emitters. Marginal mitigation cost is determined by the initial ratio of clean energy quantity to dirty energy quantity, clean energy endowment, price index, and carbon emission coefficient. Global welfare would be raised by redistributing finance, as it can reduce 875 million tons of carbon emissions, or 2.5% of 2017’s world total.
Naixin Huang is a Ph.D. candidate in economics from Tsinghua University. Her research with HCP research associate Dr. Mun S. Ho and visiting Prof. Jing Cao focuses on the global carbon price floor’s welfare effects and optimal design. The 2°C goal is challenging to reach, and it will be essential to consider the international differences in mitigation costs and benefits. IMF (2021) proposes a system of global carbon prices in which countries at different economic levels assign different carbon prices. Using a global trade model, she and colleagues seek to illustrate the impact of such a differentiated price floor system. Then, they seek an alternative design for the worldwide carbon price floor. Besides the global carbon price floor, she and visiting Prof. Jing Cao also researched international climate finance’s welfare effects and optimal design.
Sponsored by the Harvard-China Project on Energy, Economy, and Environment at the Harvard John A. Paulson School of Engineering and Applied Sciences.