A fair mechanism for efficient reduction of global CO2-emissions

Abstract

Abstract Because of the public good character of global emissions it is difficult to implement reductiontargets as formulated at Toronto or Rio. This paper presents a simple mechanism for inducingefficient contributions to the reductions of emissions as a non-cooperative equilibrium. Theworld is partitioned into groups of countries, and then each country is taxed or subsidisedaccording to its relative performance in the group. We estimate abatement cost- and benefitfunctions for 135 countries and simulate the mechanism for different groupings of countries.The simulations show that the involved global budget is the smaller the finer the partition andthe more equal the countries within a group. Moreover, with such a partition most countriesprofit from the mechanism so that broad political support may be expected. If groups arecomposed of unequal countries, then the mechanism leads to a more egalitarian distribution ofworld income and welfare.Key words: public goods, efficient private provision, greenhouse gas emissions, globalwarmingJEL classification: H41, Q28