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The Polluter Pays Principle and Cost-Benefit Analysis of Climate Change: An Application of Fund


  • Richard S.J. Tol

    (Hamburg University, Vrije Universiteit and Carnegie Mellon University)


I compare and contrast five climate scenarios: (1) no climate policy; (2) non-cooperative cost-benefit analysis (NC CBA); (3) NC CBA with international permit trade; (4) NC CBA with joint and several liability for climate change damages; and (5) NC CBA with liability proportional to a country’s share in cumulative emissions. As estimates of the marginal damage costs are low, standard NC CBA implies only limited emission abatement. With international permit trade, emission abatement is even less, as the carbon tax is reduced in countries with fast-growing emissions, and because a permit market ignores the positive, dynamic externalities of abatement. Proportional liability shifts abatement effort towards the richer countries, but away from the fast-growing economies; again, long-term, global emission abatement is reduced. Joint and several liability would lead to more stringent climate policy. These findings are qualitatively robust to the size and accounting of climate change impacts, to the definition of liability, and to the baseline scenario

Suggested Citation

  • Richard S.J. Tol, 2006. "The Polluter Pays Principle and Cost-Benefit Analysis of Climate Change: An Application of Fund," Working Papers 2006.88, Fondazione Eni Enrico Mattei.
  • Handle: RePEc:fem:femwpa:2006.88

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    References listed on IDEAS

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    Cited by:

    1. Rob Dellink & Michel den Elzen & Harry Aiking & Emmy Bergsma & Frans Berkhout & Thijs Dekker & Joyeeta Gupta, 2009. "Sharing the Burden of Adaptation Financing: An Assessment of the Contributions of Countries," Working Papers 2009.59, Fondazione Eni Enrico Mattei.
    2. Anthoff, David & Tol, Richard S.J., 2010. "On international equity weights and national decision making on climate change," Journal of Environmental Economics and Management, Elsevier, vol. 60(1), pages 14-20, July.

    More about this item


    Climate Change; Cost-benefit Analysis; Liability; Permit Trade;

    JEL classification:

    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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