Equity, Emissions Allowance Trading and the Paris Agreement on Climate Change

Abstract

The Conference of the Parties to the UN Framework Convention on Climate Change (COP21), held in Paris in December 2015, resulted in voluntary greenhouse gas (GHG) reduction pledges, independent of each other, by 195 countries. The purpose of this paper is to analyze the equity implications of this "bottom-up" approach to climate change negotiations in two major ways. First we analyze the GHG reduction targets specified in the COP21 agreement prior to any emissions trading in terms of the Gini Coefficient equity metric. We also compare the pledges with specific equity principles proposed by developing countries for many years, such as the Egalitarian and Ability to Pay equity. Second, we analyze the equity outcomes after emissions trading takes place for a sample of countries/regions. We find that international policy coordination through a system of tradable GHG emissions allowances can greatly lower the cost to all participants of reducing atmospheric concentrations of greenhouse gases. An emissions trading system involving all countries and regions that made unconditional pledges at COP21 could reduce total GHG mitigation costs from an estimated $1.71 trillion to $0.4 trillion (in 2015 dollars), a savings of 77%. The ensuing allowance sales revenues would greatly enhance the capability of lower-income countries to meet their COP21 pledges. Moreover, the cost-savings in high-income countries would facilitate contributions to the promised fund of $100 billion per year to assist climate policy implementation in low-income countries.

Policy Brief—Achieving Paris Climate Agreement Pledges: Alternative Designs for Linking Emissions Trading Systems

“…We derive macroeconomic marginal mitigation cost curves from the global General Equilibrium Model for Economy -Energy -Environment (GEM-E3), an integrated energy, environment, and economic model (Vandyck et al 2016). The cost curves are then inserted into a mitigation cost-minimizing model developed for emissions trading analysis (Rose et al 1998) and recently refined for the Paris Agreement (Rose et al 2017b). Then, based on a meta-analysis of the database underlying the Intergovernmental Panel on Climate Change's Fifth Assessment Report (AR5), we derive an estimate of the shift of the marginal mitigation costs that result from technological progress over time.…”

“…However, unlike under stage 1, many LMI regions become allowance buyers, including more advanced countries (e.g., Brazil) and countries with relatively much lower per capita income (e.g., Indonesia). One reason for this result is that these countries have made high pledges, both in absolute terms and in relative terms compared to their mitigation commitments prior to COP21 (Rose et al 2017b). This result is also driven by the vast potential for inexpensive GHG mitigation in China and India.…”

“…This provides further support for the $100 billion annual fund to help low-income countries meet their pledges, which was endorsed by the Paris Agreement. This conclusion is based on the analysis of the distribution of mitigation burden in terms of traditional equity principles such as ability to pay and egalitarian equity (see Rose et al 2017b).…”

Greenhouse gas emissions and carbon sequestration by agroforestry systems in southeastern Brazil

“…The signatory countries stipulate their Intended Nationally Determined Contributions (INDCs), which are the main commitments and contributions of that country for the fulfillment of the agreement 2,3 .…”

Economics of Disasters and Climate Change – The Journal’s First Year

“…Noy 2017), literature surveys about insurance (Franzke 2017) and internal migration (Bier 2017), and papers with strong normative or policy implications (Rose et al 2017;Smith et al 2017;Hallegatte 2017).…”