Measuring unilateral and multilateral gains from tackling current economic inefficiencies in CO2 reductions: Theory and evidence

Sushama Murty ()

No 1604, Discussion Papers from University of Exeter, Department of Economics

Abstract: We develop a methodology for (a) constructing unilateral profit (producer surplus)- increasing and emission-decreasing policy reforms and (b) measuring marginal abatement cost (MAC), when countries operate inefficiently in meeting their self-imposed emission caps and when instantaneous radical jumps from their inefficient status-quos to their emission-constrained optima are infeasible due to existing institutional and political constraints. Data from 118 countries combined with the theoretical methodology developed reveals that (a) allocative inefficiencies are pervasive, (b) our proposed unilateral-efficiency increasing reform can result in more than 8% increase in global profit and 30% reduction in net global emission of CO2 - the biggest gainers being USA, China, Japan, Russia, India, and several countries from western European, and (c) MACs range from zero to 3,000 USD per ton of carbon (USDptc) in 94% of countries in our sample. MAC is more than (resp., less than) 1,000 USDptc in 80% of OECD (resp., 61% of non-OECD) countries. While MACs are zero for many countries in the former Soviet block, they are more than 2,000 USDptc for countries in western Europe. These differences in MACs imply considerable scope for multilateral efficiency improvements in meeting voluntary emission reduction targets through international emission trading and other international climate initiatives.

Keywords: allocative inefficiencies under an emission cap; marginal and non-marginal efficiency-improving policy reforms; marginal abatement costs; ability to abate; reduction in profit. (search for similar items in EconPapers)
JEL-codes: Q5 Q54 Q58 (search for similar items in EconPapers)
Date: 2016
New Economics Papers: this item is included in nep-ene and nep-env
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