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Sustainable Climate Treaties

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  • Hans Gersbach
  • Noemi Hummel
  • Ralph Winkler

Abstract

We examine a global refunding scheme for mitigating climate change. Countries pay an initial fee into a global fund that is invested in long-run assets. In each period, part of the fund is distributed among the participating countries in relation to the emission reductions they have achieved in this period. We identify two possible types of sustainable treaty. A first-best sustainable treaty involves varying amounts of refunded wealth and a minimal amount of initial fees inducing socially desirable abatement efforts in each period. In a secondbest sustainable treaty with only two parameters - optimally selected initial fees and constant refunds equal to the interest earned on the fund - the stock of greenhouse gases converges to the socially optimal stock. Finally, we suggest ways for countries to raise money for the payment of initial fees that are neutral to tax payers and international capital markets.

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Paper provided by Universitaet Bern, Departement Volkswirtschaft in its series Diskussionsschriften with number dp1105.

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Date of creation: Jun 2011
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Handle: RePEc:ube:dpvwib:dp1105

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Keywords: climate change mitigation; refunding scheme; international agreements;

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  3. Hans Gersbach & Ralph Winkler, 2007. "On the Design of Global Refunding and Climate Change," CER-ETH Economics working paper series 07/69, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich, revised Jul 2007.
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Cited by:
  1. Fabio Sferra & Massimo Tavoni, 2013. "Endogenous Participation in a Partial Climate Agreement with Open Entry: A Numerical Assessment," Working Papers 2013.60, Fondazione Eni Enrico Mattei.

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