Global CO2 Agreements: A Cost-Effective Approach

Abstract

In this paper I specify CO2 abatement cost functions for five different world regions. A cost-effective CO2 agreement is defined by the emissions that follow from minimising the total abatement costs, given a specified CO2 emission limit. Under the cost-effective agreement, the industrialised countries bear all reductions, while developing countries are actually allowed to increase emissions compared to the 1990 level. The developing countries will, nevertheless, bear the highest burdens under this treaty. The agreement is also analysed under different tradeable permit regimes and compared to uniform percentage reductions. The transfers from tradeable permit systems are high, and may be difficult for political leaders to justify. An allocation based on historical CO2 emissions is the only simple rule which ensures every region is better off than under uniform percentage reductions.