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Bridging the Ambition Gap in Climate Policy: The Emissions Reduction Potential of Bilateral Emissions Trading Under Article 6.2 of the Paris Agreement

Author

Listed:
  • Christoph Böhringer
  • Carsten Helm
  • Laura Schürer

Abstract

Countries’ current Nationally Determined Contributions (NDCs) under the Paris Agreement leave a substantial gap to the emissions reductions needed to limit global warming to 2°C. Böhringer et al. (2025) showed the large emissions reduction potential of global emissions trading even if countries choose their tradable emissions reduction contributions strategically as mutual bestresponse strategies. However, the prospects for a global trading system appear rather bleak. By contrast, countries have already started to trade emissions reductions in bilateral agreements under Article 6.2 of the Paris Agreement. Even though bilateral agreements may appear to be a significant restriction at first glance, they prove to be quite effective in terms of global emissions reductions when strategic choices of tradable emissions reduction contributions are taken into account. Numerical simulations based on empirical data show that the most effective bilateral trading club – consisting of South Korea or Europe and China – increases global emissions abatement from 17% (relative to BaU) without trading to 30%, and exploits 80% of the emissions reduction potential of a global trading system.

Suggested Citation

  • Christoph Böhringer & Carsten Helm & Laura Schürer, 2025. "Bridging the Ambition Gap in Climate Policy: The Emissions Reduction Potential of Bilateral Emissions Trading Under Article 6.2 of the Paris Agreement," CESifo Working Paper Series 12170, CESifo.
    • Handle: RePEc:ces:ceswps:_12170
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    References listed on IDEAS

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    1. Helm, Carsten, 2003. "International emissions trading with endogenous allowance choices," Journal of Public Economics, Elsevier, vol. 87(12), pages 2737-2747, December.
    2. Böhringer, Christoph & Helm, Carsten & Schürer, Laura, 2025. "How to boost countries’ climate ambitions: Turning gains from emissions trading into gains for climate," Journal of Environmental Economics and Management, Elsevier, vol. 133(C).
    3. 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.
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    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games

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