Global Unanimity Equilibrium on the Carbon Budget
33 Pages Posted: 1 Apr 2019
Date Written: March 29, 2019
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: Suggested Citation