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Global tradable carbon permits, participation incentives, and transfers

Author

Listed:
  • Larsen, Bjorn
  • Shah, Anwar

Abstract

Most OECD countries have committed themselves to stabilizing their carbon emission at 1990 levels by the year 2000, and some to reducing emissions to 80-90 percent of 1990 levels by the years 2005 and 2010. Most non-OECD countries are reluctant to reduce emissions to combat global climate change. They argue that such policies would forestall their development, that the stock of greenhouse gases in the air is primarily from historical emissions from OECD countries and the former Soviet Union, and that those countries should be made to bear the cost of such abatement policies. The authors evaluate alternative permit allocations for a global tradeable permit regime designed to minimize the cost of stabilizing world carbon emissions from fossil fuel combustion at 1987 levels by the year 2000. They find that an important cross-section of countries would have little incentive to participate in a treaty based on such widely discussed forms of permit allocations as permit allocations by Gross Domestic Product, by population, or by some combination of the two. To encourage participation, it is proposed that each non-OECD country be allocated permits equivalent to its projected baseline emissions - and that OECD countries be allocated permits equivalent to the world emissions target minus the permit allocation to the non-OECD countries. Such a scheme recognizes that OECD countries have a higher willingness to pay for increasing reduction and that non-OECD countries have a smaller historical"global emissions debt."Under the proposed regime, the authors find that the cost of emissions reduction for OECD countries would be about 50 percent lower than unilateral reductions would be, and that non-OECD countries would also realize substantial net gains from participating in such a global treaty. Moreover, that global treaty would be 68 percent less costly worldwide than would realizing the same target through unilateral reductions by the OECD countries.

Suggested Citation

  • Larsen, Bjorn & Shah, Anwar, 1994. "Global tradable carbon permits, participation incentives, and transfers," Policy Research Working Paper Series 1315, The World Bank.
  • Handle: RePEc:wbk:wbrwps:1315
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    References listed on IDEAS

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    1. Anwar Shah & Bjorn Larsen, 2014. "Carbon taxes, the greenhouse effect, and developing countries," Annals of Economics and Finance, Society for AEF, vol. 15(1), pages 353-402, May.
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    Citations

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    Cited by:

    1. Marc Vielle & Alain L. Bernard, 1998. "Un exemple d'utilisation : le coût de politiques de réduction des gaz à effet de serre," Économie et Prévision, Programme National Persée, vol. 136(5), pages 33-48.
    2. Panayotou, Theodore & Sachs, Jeffrey D. & Zwane, Alix Peterson, 2002. "Compensation for "Meaningful Participation" in Climate Change Control: A Modest Proposal and Empirical Analysis," Journal of Environmental Economics and Management, Elsevier, vol. 43(3), pages 437-454, May.
    3. Zhou, P. & Wang, M., 2016. "Carbon dioxide emissions allocation: A review," Ecological Economics, Elsevier, vol. 125(C), pages 47-59.
    4. Karp, Larry & Liu, Xuemei, 1999. "Valuing Tradeable CO2 Permits for OECD Countries," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt5dv5c8hr, Department of Agricultural & Resource Economics, UC Berkeley.
    5. Adam Rose & Brandt Stevens, 1998. "A Dynamic Analysis of Fairness in Global Warming Policy: Kyoto, Buenos Aires, and Beyond," Journal of Applied Economics, Universidad del CEMA, vol. 1, pages 329-362, November.
    6. Sotelsek, Daniel F. & Azqueta Oyarzún, Diego, 1999. "Comparative advantages and the exploitation of environmental resources," Revista CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), August.
    7. GERMAIN, Marc & VAN STEENBERGHE, Vincent, 2001. "Constraining equitable allocations of tradable greenhouse gases emission quotas by acceptability," CORE Discussion Papers 2001005, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    8. Mustafa Babiker, 1998. "The CO2 Abatement Game: Costs, Incentives and the Stability of a Sub-Global Coalition," Computational Economics 9807002, EconWPA.
    9. Svendsen, Gert Tinggaard, 1998. "A general model for CO2 regulation: the case of Denmark," Energy Policy, Elsevier, vol. 26(1), pages 33-44, January.
    10. Kohn, Robert E., 2001. "Unilateral transfer of abatement capital," Resource and Energy Economics, Elsevier, vol. 23(2), pages 85-95, April.
    11. Babiker, Mustafa H., 2001. "The CO2 abatement game: Costs, incentives, and the enforceability of a sub-global coalition," Journal of Economic Dynamics and Control, Elsevier, vol. 25(1-2), pages 1-34, January.
    12. David Appels, 2001. "Forest rotation lengths under carbon sequestration payments," Others 0110007, EconWPA.
    13. Adam Rose & Brandt Stevens & Jae Edmonds & Marshall Wise, 1998. "International Equity and Differentiation in Global Warming Policy," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 12(1), pages 25-51, July.

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