2.4.2.3 Transaction and implementation costs

In practice, the implementation of climate change mitigation policies requires some transaction and implementation costs. The implementation costs relate to the efforts needed to change existing rules and regulations, capacity-building efforts, information, training and education, and other institutional efforts needed to put a policy into place. Assuming that these implementation requirements are in place, there might still be costs involved in carrying through a given transaction, for example related to legal requirements of verifying and certifying emission reduction, as in the case of CDM projects. These costs are termed ‘transaction costs’. The transaction costs can therefore be defined as the costs of undertaking a business activity or implementing a climate mitigation policy, given that appropriate implementation efforts have been (or are being) created to establish a benign market environment for this activity.

Implementation policies and related costs include various elements related to market creation and broader institutional policies. In principle, mitigation studies (where possible) should include a full assessment of the cost of implementation requirements such as market reforms, information, establishment of legal systems, tax and subsidy reforms, and institutional and human capacity efforts.

In practice, few studies have included a full representation of implementation costs. This is because the analytical approaches applied cannot address all relevant implementation aspects, and because the actual costs of implementing a policy can be difficult to assess ex ante. However, as part of the implementation of the emission reduction requirements of the Kyoto Protocol, many countries have gained new experiences in the effectiveness of implementation efforts, which can provide a basis for further improvements of implementation costs analysis.