Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/324658 
Year of Publication: 
2025
Series/Report no.: 
Kiel Working Paper No. 2296
Publisher: 
Kiel Institute for the World Economy (IfW Kiel), Kiel
Abstract: 
This paper examines how donor countries can be motivated by self-interest to fund emission reductions in low- and middle-income countries (LMICs). While not solving the broader climate cooperation problem, we propose pragmatic measures that do not require global consensus on future climate risks or binding commitments. We quantify the unilateral benefits for donors - reduced climate damages and improved terms-of-trade from lower fossil fuel prices - resulting from financing fossil fuel demand reductions. To address project-level finance inefficiencies, we introduce jurisdictional reward funds targeting governments, which also generate implicit wealth transfers to LMICs. A self-enforcing coalition of fossil fuel importers, such as the European Union and China, could mobilize USD 66 billion annually for mitigation in LMICs, cutting emissions by 1060 Mt CO₂ per year and transferring USD 33 billion per year. LMICs additionally benefit from USD 78 billion in reduced climate damages and USD 19 billion from lower fuel prices. We explore coalition stability, geopolitical considerations, and how broader tax and reward mechanisms could further improve global climate, forest, and health outcomes.
Subjects: 
Jurisdictional Reward Funds
tax coalitions
fuel market leakage
global public goods
terms-of-trade effects
demand-side climate policy
JEL: 
H23
H87
F55
Q41
Document Type: 
Working Paper

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