Global economic implications of alternative climate policy strategies

Abstract

This paper investigates the world economic implications of climate change policy strategies, and particularly evaluates the impacts of an implementation of clean development mechanisms (CDM), joint implementation (JI) and emissions trading with a world integrated assessment model. Of special interest in this context are welfare spill over and competitiveness effects resulting from diverse climate policy strategies. This study elaborates and compares multi-gas policy strategies and explores the impacts of sink inclusion. We furthermore examine the economic impacts on all world regions of the USA’s non-cooperative, free rider position resulting from its recent isolated climate policy strategy decision. It turns out that CDM and JI show evidence of improvement in the economic development in host countries and increase the share of new applied technologies. The decomposition of welfare effects demonstrates that the competitiveness effect (including the spill over effects from trade) have the greatest importance because of the intense trade relations between countries. Climatic effects will have a significant impact within the next 50 years, will cause considerable welfare losses to world regions and will intensify if nations highly responsible for pollution like the USA do not reduce their emissions.