Distribution Matters ; Taxes vs. Emissions Trading in Post Kyoto Climate Regimes
The policy instruments for emissions reductions will be an integral part of a Post Kyoto Climate Regime. In this paper we compare a harmonized international carbon tax to a cap and trade system with different allocation rules for the emission caps. The caps are based either on the requirement for equal percentage reductions in all countries or the “contraction and convergence” proposal that leads to converging per capita emission rights. The quantitative analysis is based on simulations with the CGE model DART. The harmonized carbon tax tends to favor industrialized countries but is less favorable to developing countries. The welfare effects of a cap and trade system depend crucially on the allocation rule for emission rights. The “contraction and convergence” approach leads to welfare gains for countries like China, India and Subsaharan Africa whereas it imposes welfare losses upon industrialized countries which are larger than those under other cap and trade schemes or a tax scenario. Independent from the allocation rule that is used regions exporting fossil fuels experience strong welfare losses from the reduction in the demand for fossil fuels and the fall in prices that results from the imposition of the international climate policies.
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- Gernot Klepper & Sonja Peterson & Katrin Springer, 2003. "DART97: A Description of the Multi-regional, Multi-sectoral Trade Model for the Analysis of Climate Policies," Kiel Working Papers 1149, Kiel Institute for the World Economy.
- Klepper, Gernot & Peterson, Sonja, 2006.
"Marginal abatement cost curves in general equilibrium: The influence of world energy prices,"
Resource and Energy Economics,
Elsevier, vol. 28(1), pages 1-23, January.
- Gernot Klepper & Sonja Peterson, 2004. "Marginal Abatement Cost Curves in General Equilibrium: The Influence of World Energy Prices," Working Papers 2004.136, Fondazione Eni Enrico Mattei.
- Klepper, Gernot & Peterson, Sonja, 2006. "Marginal abatement cost curves in general equilibrium: The influence of world energy prices," Open Access Publications from Kiel Institute for the World Economy 3775, Kiel Institute for the World Economy (IfW).
- den Elzen, Michel & Lucas, Paul & Vuuren, Detlef van, 2005. "Abatement costs of post-Kyoto climate regimes," Energy Policy, Elsevier, vol. 33(16), pages 2138-2151, November.
- Bohringer, Christoph & Welsch, Heinz, 2004. "Contraction and Convergence of carbon emissions: an intertemporal multi-region CGE analysis," Journal of Policy Modeling, Elsevier, vol. 26(1), pages 21-39, January.
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