Self-Enforcing Agreements and International Trade in Greenhouse Gas Emission Rights
46 Pages Posted: 25 Oct 2004
Date Written: September 2004
Abstract
The success of any international climate change agreement depends on abatement targets and the incentives for countries to participate. We demonstrate that international emission trading is effective in making headway on both issues despite the assumption that countries choose their permit endowments non-cooperatively. Developing countries are lured into a trading system by the prospective rents from permit sales. Developed countries benefit from the reduced cost of emission abatement. Using a calibrated representation of the global economy in seven sectors and six regions, we find that the most effective permit-trading agreements are sub-global and yield abatement at approximately twice the level achieved in a world without permit trading.
Keywords: Climate change, coalitions, general equilibrium, tradable permits
JEL Classification: F18, F42, Q58, R13
Suggested Citation: Suggested Citation
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