Evaluation of uncertain projects under Joint Implementation
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Joint implementation of the Framework Convention for Climate Change means that countries may be credited emission reductions that they finance abroad in order to reduce costs. This paper discusses the aspect of uncertainty in the evaluation of such projects. According to a standard result in recent investment theory, the choice between measures may depend critically on whether the costs mainly consist of investments or can be paid as operating costs. The latter kind of projects allows for a flexibility that is attractive compared with investments that imply fixed costs. Joint implementation projects will probably involve considerable investments, while measures at home may allow for flexibility. Thus, joint implementation may be less attractive than it seems at the first glance. On the total, however, joint implementation extends the range of available measures, and thereby increases the ability to follow flexible strategies.