A development-compatible refunding scheme for a climate treaty

We suggest a development-compatible refunding system designed to mitigate climate change. Industrial countries pay an initial fee into a global fund. Each country chooses its national carbon tax. Part of the global fund is refunded to developing and industrial countries, in proportion to the relative emissions reductions they achieve. Countries receive refunds net of tax revenues. We show that such a scheme can simultaneously achieve efficient emissions reductions and equity objectives, as developing countries do not have to pay an initial fee, are net receivers of funds, are net beneficiaries, and abate voluntarily. Moreover, we explore the potential of simple and politically more acceptable refunding schemes that do not claim tax revenues and only rely on initial fees paid by industrial countries.