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Global tradable carbon permits, participation incentives, and transfers

  • Larsen, Bjorn
  • Shah, Anwar

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.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 1315.

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Date of creation: 30 Jun 1994
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Handle: RePEc:wbk:wbrwps:1315
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  1. Summers, Lawrence H., 1991. "The Case for Corrective Taxation," National Tax Journal, National Tax Association, vol. 44(3), pages 289-92, September.
  2. Shah, Anwar & Larsen, Bjorn, 1992. "Carbon taxes, the greenhouse effect, and developing countries," Policy Research Working Paper Series 957, The World Bank.
  3. P.J. Romilly, 1991. "Global Warming and the Car," Journal of Interdisciplinary Economics, , vol. 4(1), pages 91-100, January.
  4. Pearce, David W, 1991. "The Role of Carbon Taxes in Adjusting to Global Warming," Economic Journal, Royal Economic Society, vol. 101(407), pages 938-48, July.
  5. Hoel, Michael, 1991. "Global environmental problems: The effects of unilateral actions taken by one country," Journal of Environmental Economics and Management, Elsevier, vol. 20(1), pages 55-70, January.
  6. James M. Poterba, 1991. "Tax Policy to Combat Global Warming: On Designing a Carbon Tax," NBER Working Papers 3649, National Bureau of Economic Research, Inc.
  7. William D. Nordhaus, 1991. "The Cost of Slowing Climate Change: a Survey," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1), pages 37-66.
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