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The gains from international carbon trade and the ranking of suboptimal climate policies

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  • Karp, Larry

Abstract

Recently discussed international climate policies are suboptimal and do not include international trade in carbon permits. My estimate of the gains from reallocating abatement distinguishes between “fiat gains” that can be achieved by using public information to reallocate quotas, and ``market gains” that require a mechanism to reveal private or non-verifiable information. I estimate that market gains would reduce abatement costs by 7\% at an abatement target of 40\%, but this would finance only a 1\% increase in abatement. The suboptimality of policy targets favors quotas over taxes, but the lack of international trade swamps this effect, favoring taxes.

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  • Karp, Larry, 2025. "The gains from international carbon trade and the ranking of suboptimal climate policies," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt3b14h7g0, Department of Agricultural & Resource Economics, UC Berkeley.
    • Handle: RePEc:cdl:agrebk:qt3b14h7g0
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