The Economics of Climate Change Mitigation: How to Build the Necessary Global Action in a Cost-Effective Manner

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The Economics of Climate Change Mitigation: How to Build the Necessary Global Action in a Cost-Effective Manner

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Jean-Marc Burniaux
Jean Château
Rob Dellink
Romain Duval
Stéphanie Jamet

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Abstract

This paper examines the cost of a range of national, regional and global mitigation policies and the corresponding incentives for countries to participate in ambitious international mitigation actions. The paper illustrates the scope for available instruments to strengthen these incentives and discusses ways to overcome barriers to the development of an international carbon price, based on the quantitative assessment from two global and sectorially-disaggregated CGE models. Key step towards the emergence of a single international carbon price will most likely involve the phasing out of subsidies of fossil fuel consumption and various forms of linking between regional carbon markets, ranging from direct linking of existing emission trading systems to more indirect forms through the use of sectoral crediting mechanisms. The paper discusses regulatory issues raised by the expansion of emission trading and crediting schemes as well as the complementary contribution of non-market based instruments such as the imposition of technical standards and R&D policies. Finally, the paper emphasises the important role of international transfers, not least to overcome the relatively strong economic incentives in some countries to free ride on other regions mitigation actions. While they can take various explicit or implicit forms, transfers made primarily through market mechanisms, for instance via the allocation of binding emission reduction commitments across countries, would be most cost-effective.

L'économie de l'atténuation du changement climatique : comment élaborer l'action nécessaire au niveau mondial avec un rapport coût-efficacité optimal ?
Cette étude examine le coût d’un éventail de mesures prises au plan national, régional et mondial pour réduire les émissions de gaz à effet de serre, ainsi que les incitations pour les pays à participer à des actions mondiales ambitieuses de mitigation. L’étude illustre la capacité des instruments disponibles à renforcer ces incitations et discute des moyens pour surmonter les barrières au développement d’un prix mondial du carbone, sur la base d’une évaluation quantitative à partir de deux modèles d’équilibre général désagrégés au plan sectoriel. Parmi les étapes essentielles vers l’émergence d’un prix mondial unique du carbone on trouvera vraisemblablement la suppression des subventions à la consommation des combustibles fossiles ainsi que des formes diverses d'intégration des marchés du carbone régionaux, allant des couplages directs des systèmes d’échange de droits d’émission à des formes plus indirectes par le biais d’un mécanisme de crédits d’émission. Cette étude examine les questions de réglementation soulevées par l’expansion des systèmes d’échange de droits et de crédits d’émissions ainsi que le rôle complémentaire politique de R&D.

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Paper provided by OECD, Economics Department in its series OECD Economics Department Working Papers with number 701.

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Date of creation: 02 Jun 2009
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Handle: RePEc:oec:ecoaaa:701-en

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Find related papers by JEL classification:
H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
O13 - Economic Development, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
O3 - Economic Development, Technological Change, and Growth - - Technological Change
Q32 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Exhaustible Resources and Economic Development
Q34 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Natural Resources and Domestic and International Conflicts
Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters

This paper has been announced in the following NEP Reports:

NEP-ALL-2009-06-10 (All new papers)
NEP-ENE-2009-06-10 (Energy Economics)
NEP-ENV-2009-06-10 (Environmental Economics)

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This page was last updated on 2009-11-20.

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