The gains from international carbon trade and the ranking of suboptimal climate policies

Larry Karp

Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series from Department of Agricultural & Resource Economics, UC Berkeley

Abstract: Recently discussed international climate policies are suboptimal and do not include international trade in carbon permits. My estimate of the gains from reallocating abatement distinguishes between “fiat gains” that can be achieved by using public information to reallocate quotas, and ``market gains” that require a mechanism to reveal private or non-verifiable information. I estimate that market gains would reduce abatement costs by 7\% at an abatement target of 40\%, but this would finance only a 1\% increase in abatement. The suboptimality of policy targets favors quotas over taxes, but the lack of international trade swamps this effect, favoring taxes.

Keywords: Social and Behavioral Sciences; asymmetric information; pollution control; cap and trade; Article 6 of Paris Agreement; policy ranking (search for similar items in EconPapers)
Date: 2025-08-22
New Economics Papers: this item is included in nep-ene and nep-env
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