C&C - Contraction and Convergence of Carbon Emissions: The Economic Implications of Permit Trading

23 Pages Posted: 29 Apr 2003

See all articles by Christoph Böhringer

Christoph Böhringer

University of Oldenburg - Economic Policy; Centre for European Economic Research (ZEW)

Heinz Welsch

University of Oldenburg; ZenTra - Center for Transnational Studies

Date Written: 1999

Abstract

In the context of climate protection policy it has been suggested that global CO2 emissions should be reduced significantly (contraction) and that per capita emissions should gradually be equalized across countries (convergence). This paper uses a dynamic multi-region computable general equilibrium model of the world economy to assess the economics of "Contraction and Convergence" (C&C). In comparing a regime of tradable and non-tradable emission rights for implementing C&C we find that the former allows to reduce long-term costs of abatement in terms of Hicksian equivalent variation in lifetime income by more than 50 percent in comparison with the latter. Under a tradable permit regime some developing countries improve their economic welfare even beyond non-abatement baseline levels. A decomposition of the general equilibrium effects associated with C&C shows that changes in the terms of trade constitute a key determinant of the overall welfare effects.

Keywords: climate protection, international equity, emissions trading, economic welfare, computable general equilibrium modeling

JEL Classification: Q2, Q4, D58

Suggested Citation

Bohringer, Christoph and Welsch, Heinz, C&C - Contraction and Convergence of Carbon Emissions: The Economic Implications of Permit Trading (1999). ZEW Discussion Paper No. 99-13. Available at SSRN: https://ssrn.com/abstract=376042 or http://dx.doi.org/10.2139/ssrn.376042

Christoph Bohringer (Contact Author)

University of Oldenburg - Economic Policy ( email )

Centre for European Economic Research (ZEW) ( email )

D-68161 Mannheim
Germany
+49 6211235200 (Phone)
+49 6211235226 (Fax)

Heinz Welsch

University of Oldenburg ( email )

Ammerländer Heerstraße 114-118
Oldenburg, D-26111
Germany

ZenTra - Center for Transnational Studies ( email )

Ammerländer Heerstraße 138
Oldenburg, 26131
Germany

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