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Cooperative Action on Greenhouse Gas Emissions and the Distribution of Global Output and damage

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  • Peter Kennedy

    () (University of Victoria)

Abstract

Abstract This paper compares the performance of two allowance allocation rules in an international climate change treaty. I construct a model in which countries differ according to both GDP and an idiosyncratic damage parameter that links global emissions to damage for an individual country. Allowances are allocated to treaty members according to an allocation rule based on a single allocation parameter. The model can be solved analytically to determine upper and lower bounds on this allocation parameter that ensure that a treaty of any given composition is internally and externally stable. I focus on grand coalition treaties. The first treaty examined uses a simple proportional rule in which allocations are set as some fraction of emissions in the non-cooperative equilibrium. The second treaty adds a coverage-contingent element to the allocation rule such that the emissions reduction required of each treaty member is weighted by the fraction of global emissions that treaty members as a whole emit in the non-cooperative equilibrium. I show that the coverage-contingent treaty outperforms the simpler treaty except when all countries have the same emissions intensity in the non-cooperative equilibrium (in which case neither treaty can reduce emissions).

Suggested Citation

  • Peter Kennedy, 2016. "Cooperative Action on Greenhouse Gas Emissions and the Distribution of Global Output and damage," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 63(1), pages 147-166, January.
  • Handle: RePEc:kap:enreec:v:63:y:2016:i:1:d:10.1007_s10640-014-9845-1
    DOI: 10.1007/s10640-014-9845-1
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    References listed on IDEAS

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