On the Design of Global Refunding and Climate Change

Abstract

We design a global refunding scheme as a new international approach to address climate change. A global refunding system allows each country to set its carbon emission tax, while aggregate tax revenues are partially refunded to member countries in proportion to the relative emission reductions they achieve within a given period, compared to some given baseline emissions. In a simple model we show that a suitably designed global refunding scheme is self-enforcing and achieves the social global optimum.

Keywords: climate change mitigation, global refunding scheme, international agreements, self-enforcing mechanisms

JEL Classification: H23, Q54, H41