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Global emission ceiling versus international cap and trade: What is the most efficient system to solve the climate change issue?

Author

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  • Jacqueline Morgan
  • Fabien Prieur

    () (EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique)

Abstract

We model the climate change issue as a pollution control game with the purpose of comparing two possible departures from the business as usual (BAU) where countries noncooperatively choose their emission levels. In the first scenario, players have to agree on a global emission cap (GEC) that is enforced by a uniform taxation scheme. They still behave strategically when choosing emission levels but are now subject to the coupled constraint imposed by the cap. The second scenario consists of the implementation of an international cap and trade (ICT) system. In this case, players decide on their emission quotas, and emission trading is allowed. A three heterogenous player quadratic game serves as a basis for the analysis. When the cap is binding, among all the coupled constraints Nash equilibria, we select a particular normalized equilibrium by solving a variational inequality. Comparing the normalized equilibrium with the Nash equilibria of the BAU and the ICT, we first show that if the cap is appropriately chosen, then the GEC system improves all players' payoffs, relative to the BAU. The GEC system may thus be unanimously approved whereas the ICT is not, because moving from the BAU to the ICT is costly for one player. Second, for some values of the cap, all players get a higher payoff under the GEC than under the ICT. Therefore, the GEC outperforms the ICT both in terms of feasibility and efficiency.
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Suggested Citation

  • Jacqueline Morgan & Fabien Prieur, 2013. "Global emission ceiling versus international cap and trade: What is the most efficient system to solve the climate change issue?," Post-Print hal-01549826, HAL.
  • Handle: RePEc:hal:journl:hal-01549826
    Note: View the original document on HAL open archive server: https://hal.archives-ouvertes.fr/hal-01549826
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    Cited by:

    1. Fabien Prieur & Martin Quaas & Ingmar Schumacher, 2019. "Mitigation strategies under the threat of solar radiation management," EconomiX Working Papers 2019-3, University of Paris Nanterre, EconomiX.

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