Transfer Design and Incentives for Nationally Appropriate Mitigation Actions in Developing Countries

Transfers would play a key role in the implementation of Nationally Appropriate Mitigation Actions (NAMAs) in developing countries. In this paper, we analyze the desirable features of such transfers - i.e., individually rational, budget-balanced, anti-incentives for free-riding and misrepresentation. We model NAMAs as a non-cooperative, one shot game. We consider NAMAs under two alternative transfer schemes: a horizontal equity-based transfer and an “optimal” transfer scheme that we call à la Weikard. Our analysis is further refined by the inclusion of the notion of pivotal countries. We find, firstly, that both transfer schemes may allow the implementation of an individually rational and budget-balanced NAMAs portfolio; secondly, that the transfer à la Weikard is more effective in avoiding free-riding. Thirdly, both transfer schemes fail to avoid misrepresentation of costs and benefits from reductions in greenhouse gas emissions. Finally, pivotal countries for NAMAs are the most interested in its implementation even if they are the largest transfer contributors.