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Equity, international trade and climate policy

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  • Claudia Kemfert
  • Richard Tol

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Abstract

The literature of welfare-maximising greenhouse gas emission reduction strategies pays remarkably little attention to equity. This paper introduces various ways to consider efficiency and equity simultaneously. Lower (higher) discount rates lead to higher (lower) emission reduction. Higher (lower) inequity aversion leads to higher (lower) emission abatement, unless one also considers the negative effects of OECD emission reduction on the exports of developing countries; in that case, the effect of inequity aversion is ambiguous. In the absence of international cooperation, higher (lower) risk aversion leads to lower (higher) emission abatement. With international cooperation, the effect of risk aversion is ambiguous because of the higher risk aversion gives more weight to poorer regions and poorer generations. We analyse four ways to introduce compassion in a noncooperative setting. If observed development aid is a guide, international altruism is small and has little impact on optimal emission control. If countries act as if they ‘feel’ but not ‘physically experience’ the climate impact of the most vulnerable country, optimal emission reduction increases, but not substantially so. However, if countries actually have to pay for the damage done, they would prefer to reduce their emissions to much lower levels. Finally, if countries pay as much to emission reduction as other countries suffer from climate change, (that is, if climate policy restores the income distribution to what it would have been without climate change), emissions are rapidly cut to very low levels.
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Suggested Citation

  • Claudia Kemfert & Richard Tol, 2002. "Equity, international trade and climate policy," International Environmental Agreements: Politics, Law and Economics, Springer, vol. 2(1), pages 23-48, March.
  • Handle: RePEc:spr:ieaple:v:2:y:2002:i:1:p:23-48
    DOI: 10.1023/A:1015034429715
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    References listed on IDEAS

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    1. Nordhaus, William D, 1991. "To Slow or Not to Slow: The Economics of the Greenhouse Effect," Economic Journal, Royal Economic Society, vol. 101(407), pages 920-937, July.
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    4. Rose, Adam & Stevens, Brandt, 1993. "The efficiency and equity of marketable permits for CO2 emissions," Resource and Energy Economics, Elsevier, vol. 15(1), pages 117-146, March.
    5. Samuel Fankhauser & Richard Tol & DAVID Pearce, 1997. "The Aggregation of Climate Change Damages: a Welfare Theoretic Approach," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 10(3), pages 249-266, October.
    6. Tol, Richard S. J., 1996. "The damage costs of climate change towards a dynamic representation," Ecological Economics, Elsevier, vol. 19(1), pages 67-90, October.
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    8. Farrow, Scott, 1998. "Environmental equity and sustainability: rejecting the Kaldor-Hicks criteria," Ecological Economics, Elsevier, vol. 27(2), pages 183-188, November.
    9. Richard Tol, 1999. "Spatial and Temporal Efficiency in Climate Policy: Applications of FUND," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 14(1), pages 33-49, July.
    10. Ridgley, Mark A, 1996. "Fair sharing of greenhouse gas burdens," Energy Policy, Elsevier, vol. 24(6), pages 517-529, June.
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    Cited by:

    1. Vaal, Albert de & Yetkiner, I. Hakan & Zon, Adriaan van, 2002. "The cyclical advancement of drastic technologies," CCSO Working Papers 200217, University of Groningen, CCSO Centre for Economic Research.
    2. Anthoff, David & Hepburn, Cameron & Tol, Richard S.J., 2009. "Equity weighting and the marginal damage costs of climate change," Ecological Economics, Elsevier, vol. 68(3), pages 836-849, January.
    3. Tol, Richard S. J. & Verheyen, Roda, 2004. "State responsibility and compensation for climate change damages--a legal and economic assessment," Energy Policy, Elsevier, vol. 32(9), pages 1109-1130, June.
    4. I. Hakan Yetkiner, 2003. "Is There An Indispensable Role For Government During Recovery From An Earthquake? A Theoretical Elaboration," Working Papers FNU-25, Research unit Sustainability and Global Change, Hamburg University, revised Apr 2003.
    5. Roberto Roson & Richard s.J. Tol, 2003. "An Integrated Assessment Model Of Economy-Energy-Climate – The Model Wiagem: A Comment," Working Papers FNU-26, Research unit Sustainability and Global Change, Hamburg University, revised May 2003.
    6. Tol, Richard S. J., 2002. "Welfare specifications and optimal control of climate change: an application of fund," Energy Economics, Elsevier, vol. 24(4), pages 367-376, July.
    7. Elizabeth Stanton, 2011. "Negishi welfare weights in integrated assessment models: the mathematics of global inequality," Climatic Change, Springer, vol. 107(3), pages 417-432, August.
    8. Pan, Xunzhang & Teng, Fei & Wang, Gehua, 2014. "A comparison of carbon allocation schemes: On the equity-efficiency tradeoff," Energy, Elsevier, vol. 74(C), pages 222-229.
    9. van der Pol, Thomas & Weikard, Hans-Peter & van Ierland, Ekko, 2012. "Can altruism stabilise international climate agreements?," Ecological Economics, Elsevier, vol. 81(C), pages 112-120.
    10. Dire Tladi, 2010. "Civil liability in the context of the Cartagena Protocol: to be or not to be (binding)?," International Environmental Agreements: Politics, Law and Economics, Springer, vol. 10(1), pages 15-27, March.
    11. Richard S.J. Tol, 2006. "The Polluter Pays Principle And Cost-Benefit Analysis Of Climate Change: An Application Of Fund," Working Papers FNU-98, Research unit Sustainability and Global Change, Hamburg University, revised Feb 2006.
    12. Johan Eyckmans & Michael Finus, 2007. "Measures to enhance the success of global climate treaties," International Environmental Agreements: Politics, Law and Economics, Springer, vol. 7(1), pages 73-97, March.
    13. I. Hakan Yetkiner, 2003. "A Short Note On The Solution Procedure Of Barro And Sala-I-Martin For Restoring Constancy Conditions," Working Papers FNU-24, Research unit Sustainability and Global Change, Hamburg University, revised Apr 2003.
    14. P. Michael Link, 2003. "Auswirkungen populationsdynamischer Veränderungen in Fischbeständen auf die Fischereiwirtschaft in der Barentssee," Working Papers FNU-29, Research unit Sustainability and Global Change, Hamburg University, revised May 2003.
    15. Kemfert, Claudia, 2004. "Climate coalitions and international trade: assessment of cooperation incentives by issue linkage," Energy Policy, Elsevier, vol. 32(4), pages 455-465, March.
    16. Pan, Xunzhang & Teng, Fei & Ha, Yuejiao & Wang, Gehua, 2014. "Equitable Access to Sustainable Development: Based on the comparative study of carbon emission rights allocation schemes," Applied Energy, Elsevier, vol. 130(C), pages 632-640.

    More about this item

    Keywords

    altruism; climate change; climate economics; efficiency; equity; greenhouse gas emission reduction; inequity aversion; Kant; no-envy; polluter pays principle; Rawls; risk aversion;

    JEL classification:

    • C71 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Cooperative Games
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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