Franck Lecocq, Zmarak Shalizid
Once established, long-lived capital stock (LLKS) such as infrastructure can lock-in a stream of GHG emissions for extended periods of time. Historical examples from industrial countries suggest that investments in LLKS projects and networks are often lumpy and concentrated in time, and often generate significant indirect and induced emissions besides direct emissions. Urbanization and rapid economic growth suggest that similar investments in LLKS projects and networks are being or will soon be made in many developing countries. In their current form, carbon markets do not provide correct incentives for mitigation in LLKS because the constraint on emissions is limited to developed countries and extends only to 2012. Targeted mitigation programmes are thus necessary where LLKS is being built at a rapid rate to avoid getting locked into highly emissions-intensive LLKS. Even if carbon markets were extended geographically, sectorally, and over time, public intervention would still be required to ensure that indirect and induced emissions are accounted for, to facilitate LLKS project/network financing that bridges the gap between carbon revenues accruing over time and capital needed up front to finance lumpy investments, and to internalize other externalities (e.g. local pollution) and/or lift other barriers that penalize low-emissions alternatives relative to high-emissions ones.