Why are there large differences in performances when the same carbon emission reductions are achieved in different countries?

Abstract

Great interest has been in unilateral climate policies, given present difficulty of establishing stable global coordinated agreements. In this paper, we investigate underlining factors explaining large differences in performances, when the same carbon emission reductions are achieved in different abating countries. To this end, we develop a new multi-country general equilibrium model, incorporating six countries (or world regions), two goods, six production inputs, capital mobility, energy mobility and international trade. Meanwhile, we adopt two performance indicators, with carbon leakage representing environmental efficiency and carbon emission abatement costs revealing cost-effectiveness. Our findings are as follows. Firstly, there are large differences in performances among these unilateral climate policies, as evidenced by large differences in leakage rates and carbon emission abatement costs. Secondly, the new global climate treaties to replace the Kyoto Protocol should be able to induce more carbon emission reductions in countries with low carbon emission reduction costs, since such setting contributes to global cost savings. Finally, developed countries have high carbon emission abatement costs compared with large developing countries (China and India in this paper), implying that there should be trade-off mechanisms between efficiency and equity regarding how to allocate carbon emission reductions among countries.