A Harvard-China Project Research Seminar with Naixin Huang, Ph.D. Candidate, Tsinghua University and Harvard-China Project Fellow

International mitigation finance is a primary way in global climate cooperation to limit fast-growing carbon emissions of developing countries. Using a multi-country-multi-sector quantitative trade model, we take the year 2017 as an example to estimate carbon mitigation and welfare effects from mitigation finance and explore its optimal recipient allocation. We find that 2017’s 44.2 billion USD mitigation finance can reduce 533 million tons of carbon emissions, or 1.5% of 2017’s world total. Each recipient country’s welfare increased and the total welfare of all providers increased. In addition, to maximize carbon mitigation, finance should be redistributed to a small number of countries with the lowest marginal mitigation cost instead of large emitters. Marginal mitigation cost is determined by the initial ratio of clean energy quantity to dirty energy quantity, clean energy endowment, price index, and carbon emission coefficient. Global welfare would be raised by redistributing finance, as it can reduce 875 million tons of carbon emissions, or 2.5% of 2017’s world total.