The Carbon-Budget Approach to Climate Stabilization: Cost-Effective Subglobal Versus Global Action
31 Pages Posted: 9 Nov 2010
Date Written: November 8, 2010
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: Suggested Citation