Global Unanimity Equilibrium on the Carbon Budget

33 Pages Posted: 1 Apr 2019

See all articles by Humberto Llavador

Humberto Llavador

Universitat Pompeu Fabra - Faculty of Economic and Business Sciences

John E. Roemer

Yale University - Department of Political Science; Yale University - Cowles Foundation

Date Written: March 29, 2019

Abstract

Carbon budgets are a useful way to frame the climate mitigation challenge and much easier to agree upon than the allocation of emissions. We propose a mechanism with countries agreeing on the global carbon budget, while the decision to emit is decentralized at the country level. The revenue is collected in a global fund and allocated according to endogenously defined weights proportional to the marginal cost of climate change. The proposal features a unanimous agreement of the national citizenries of the world and global Pareto efficiency. We run a simulation in the spirit of the Paris Agreement, with zero emissions after 2055. At the Global Unanimity Equilibrium, permits are priced at 90$/tC, yielding 1.3 trillion dollars annually. Africa, India and the less developed countries in Asia are the only net recipients, while the US and China are the largest net contributors.

Keywords: Unanimity equilibrium, Climate change, Carbon pricing, Integrated assessment models

JEL Classification: Q5, D5, D6, H0

Suggested Citation

Llavador, Humberto and Roemer, John E., Global Unanimity Equilibrium on the Carbon Budget (March 29, 2019). Cowles Foundation Discussion Paper No. 2172. Available at SSRN: https://ssrn.com/abstract=3362590 or http://dx.doi.org/10.2139/ssrn.3362590

Humberto Llavador

Universitat Pompeu Fabra - Faculty of Economic and Business Sciences ( email )

Ramon Trias Fargas 25-27
Barcelona, 08005
Spain
(34) 93 542 23 81 (Phone)
(34) 93 542 17 46 (Fax)

John E. Roemer (Contact Author)

Yale University - Department of Political Science ( email )

Box 208269
New Haven, DC 06520-8269
United States
203-432-5249 (Phone)
203-432-6196 (Fax)

HOME PAGE: http://pantheon.yale.edu/~jer39/

Yale University - Cowles Foundation

Box 208281
New Haven, CT 06520-8281
United States

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