Dynamics of Global Emission Permit Prices and Regional Social Cost of Carbon under Noncooperation

Yongyang Cai, Khyati Malik and Hyeseon Shin

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Abstract: We develop a dynamic multi-region climate-economy model with emissions trading and solve for the dynamic Nash equilibrium under noncooperation, where each region follows Paris Agreement-based emissions caps. The permit price reaches $923 per ton of carbon by 2050, and global temperature rises to 1.7 degrees Celsius above pre-industrial levels by 2100. The regional social cost of carbon equals the difference between regional marginal abatement cost and the permit price, highlighting complementarity between carbon taxes and trading. We find substantial heterogeneity in regional social costs of carbon, show that lax caps can raise emissions, and demonstrate strong free-rider incentives under partial participation.

Date: 2023-12, Revised 2026-01
New Economics Papers: this item is included in nep-ene, nep-env and nep-gth
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