In the context of climate protection policy, it has been suggested that global CO 2 emissions should be reduced significantly (contraction) and that per capita emissions should gradually be equalized across countries (convergence). This paper uses an intertemporal multi-region computable general equilibrium model of the world economy to assess the economics of “Contraction and Convergence” (C&C). Upon comparing a regime of tradable and non-tradable emission rights for implementing C&C, we find that international emissions trading increases crucially the political feasibility of the C&C proposal. The reason is that the distribution of the total efficiency gains from permit trading not only improves the economic well-being of all regions as compared to strictly domestic action, but in particular raises economic welfare of major opponents to carbon restrictions from the developing world even beyond non-abatement baseline levels. A decomposition of the general equilibrium effects associated with C&C shows that changes in the terms of trade constitute a key determinant of the overall welfare effects.