The Carbon-Budget Approach to Climate Stabilization: Cost-Effective Subglobal Versus Global Action

31 Pages Posted: 9 Nov 2010

See all articles by Thomas Eichner

Thomas Eichner

University of Siegen - School of Economic Disciplines

Rudiger Pethig

University of Siegen - School of Economic Disciplines; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: November 8, 2010

Abstract

Scientific expertise suggests that mitigating extreme world-wide climate change damages requires avoiding increases in the world mean temperature exceeding 2° Celsius. To achieve the two degree target, the cumulated global emissions must not exceed some limit, the so-called global carbon budget. In a two-period two-country general equilibrium model with a finite stock of fossil fuels we compare the cooperative cost-effective policy with the unilateral cost-effective policy of restricting emissions to the global carbon budget. In its simplest form, the cost-effective global policy is shown to consist of a joint emission trading scheme in the first period (only). In sharp contrast, subglobal cost-effective regulation may require the abating country to tax its first-period consumption and to tax or subsidize its emissions in the first and/or second period.

Keywords: carbon emissions, carbon budget, cooperative, unilateral, cost-effective regulation

JEL Classification: H21, H23, Q54, Q58

Suggested Citation

Eichner, Thomas and Pethig, Rudiger, The Carbon-Budget Approach to Climate Stabilization: Cost-Effective Subglobal Versus Global Action (November 8, 2010). CESifo Working Paper Series No. 3232. Available at SSRN: https://ssrn.com/abstract=1705107

Thomas Eichner

University of Siegen - School of Economic Disciplines ( email )

Hoelderlinstrasse 3
57068 Siegen
Germany

Rudiger Pethig (Contact Author)

University of Siegen - School of Economic Disciplines ( email )

Hoelderlinstrasse 3
57068 Siegen
Germany

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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