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  • 1 0000000404811396https://isni.org/isni/0000000404811396International Monetary Fund

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WP/21/280

IMF Working Paper

Strategy, Policy and Review Department

Global Climate Change Mitigation, Fossil-Fuel Driven Development, and the Role of Financial and Technology Transfers: A Simple Framework

Prepared by Johannes Wiegand1

November 2021

IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Abstract

Climate financing and compensation have emerged as key themes in the international climate mitigtion debate. According to one argument in support of compensation, advanced economies (AEs) have used up much of the atmosphere’s absorptive capacity, thus causing global warming and blocking a similar, fossil-fuel driven development path for emerging markets and developing economies (EMDEs). This paper develops a simple model of a sequential, fossil-fuel driven development process to discuss these issues systematically. The results suggest: (i) AEs have typically a stronger interest in climate change mitigation than EMDEs, (ii) from an equity perspective, compensation is called for only if EMDEs are relatively small; (iii) there can also be an efficiency case for compensation, however, with AEs buying EMDEs out of some of their GHG emissions; (iv) ultimately, a superior option—for both the world’s climate and growth prospects—is the development of clean energy technologies by AEs and their transfer to EMDEs. The latter requires strong mitigation efforts by AEs even if EMDEs fail to play along initially.

JEL Classification Numbers: D62, F64, O13, Q54

Keywords: Development, Climate Change, Climate Change Mitigation, Climate Financing

Author’s E-Mail Address: jwiegand@imf.org

Table of Contents

  • Abstract

  • I. Introduction

  • II. The Basic Model

  • III. Climate Compensation: Equity vs. Efficiency

  • IV. Variations

    • A. EMDEs are Large

    • B. Some EMDEs are Disproportionately Vulnerable to Climate Change

  • V. Energy Efficiency, Clean Energy Technologies and Technology Transfers

  • VI. Summary and Conclusions

  • Annex: Altruistic and Strategic Optimization

    • 1. Altruistic Optimization

    • 2. Strategic Optimization

  • References

  • Figures

  • 1. Fossil-Fuel Driven, Sequential Development

  • 2. A Climate-Development Compensation Scheme

  • 3. Large EMDEs

  • 4. EMDEs Disproportionately Vulnerable to Climate Change

  • 5. Adoption of Clean Energy Technologies

Global Climate Change Mitigation, Fossil-Fuel Driven Development, and the Role of Financial and Technology Transfers: A Simple Framework
Author: Mr. Johannes Wiegand