IDEAS home Printed from https://ideas.repec.org/p/eth/wpswif/12-159.html
   My bibliography  Save this paper

Rules vs. Targets: Climate Treaties under Uncertainty

Author

Listed:

Abstract

We demonstrate the advantages of a climate treaty based solely on rules for international permit markets when there is uncertainty about abatement costs and environmental damages. Such a ‘Rules Treaty’ comprises a scaling factor and a refunding rule. Each signatory can freely choose the number of permits it allocates to domestic firms. For every permit so issued, an international agency is allowed to issue additional permits in accordance with the scaling factor. The agency auctions all additional permits and refunds all the revenues to the signatories according to the refunding rule. Our main finding is that for a sufficiently large scaling factor, the Rules Treaty approximates the globally optimal outcome in every state of the world. In this sense, newly arriving information is optimally processed. This is in stark contrast to treaties based on emission targets, even if countries fully comply with such targets. If countries are sufficiently homogeneous there exists, moreover, a refunding rule under which every country that abates more under the treaty than in the status quo ante can be compensated, so that all countries will participate voluntarily. If, however, countries are rather heterogeneous, some may decline to participate.

Suggested Citation

  • Hans Gersbach & Quirin Oberpriller, 2012. "Rules vs. Targets: Climate Treaties under Uncertainty," CER-ETH Economics working paper series 12/159, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
  • Handle: RePEc:eth:wpswif:12-159
    as

    Download full text from publisher

    File URL: http://www.cer.ethz.ch/content/dam/ethz/special-interest/mtec/cer-eth/cer-eth-dam/documents/working-papers/WP-12-159.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Gersbach, Hans & Winkler, Ralph, 2011. "International emission permit markets with refunding," European Economic Review, Elsevier, vol. 55(6), pages 759-773, August.
    2. Joseph E. Aldy & Scott Barrett & Robert N. Stavins, 2003. "Thirteen plus one: a comparison of global climate policy architectures," Climate Policy, Taylor & Francis Journals, vol. 3(4), pages 373-397, December.
    3. Helm, Carsten, 2003. "International emissions trading with endogenous allowance choices," Journal of Public Economics, Elsevier, vol. 87(12), pages 2737-2747, December.
    4. Rob Dellink & Michael Finus & Niels Olieman, 2008. "The stability likelihood of an international climate agreement," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 39(4), pages 357-377, April.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Hans Gersbach & Marie-Catherine Riekhof, 2017. "Technology Treaties and Climate Change," CER-ETH Economics working paper series 17/268, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
    2. Julia Blasch & Nina Boogen & Nilkanth Kumar & Massimo Filippini, 2017. "The role of energy and investment literacy for residential electricity demand and end-use efficiency," CER-ETH Economics working paper series 17/269, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.

    More about this item

    Keywords

    Rules Treaties; Target Treaties; Climate Change; Uncertainty; Global Refunding Scheme; International Permit Markets;

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eth:wpswif:12-159. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (). General contact details of provider: http://edirc.repec.org/data/iwethch.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.