Equity, International Trade and Climate Policy

Claudia Kemfert and Richard Tol

No FNU-5, Working Papers from Research unit Sustainability and Global Change, Hamburg University

Abstract: The literature of welfare-maximising greenhouse gas emission reduction strategies pays remarkably little attention to equity. This paper introduces various ways to consider efficiency and equity simultaneously. Lower (higher) discount rates lead to higher (lower) emission reduction. Higher (lower) inequity aversion leads to higher (lower) emission abatement, unless one also considers the negative effects of OECD emission reduction on the exports of developing countries; in that case, the effect of inequity aversion is ambiguous. In the absence of international cooperation, higher (lower) risk aversion leads to lower (higher) emission abatement. With international cooperation, the effect of risk aversion is ambiguous because of the higher risk aversion gives more weight to poorer regions and poorer generations. We analyse four ways to introduce compassion in a noncooperative setting. If observed development aid is a guide, international altruism is small and has little impact on optimal emission control. If countries act as if they ‘feel’ but not ‘physically experience’ the climate impact of the most vulnerable country, optimal emission reduction increases, but not substantially so. However, if countries actually have to pay for the damage done, they would prefer to reduce their emissions to much lower levels. Finally, if countries pay as much to emission reduction as other countries suffer from climate change, (that is, if climate policy restores the income distribution to what it would have been without climate change), emissions are rapidly cut to very low levels.

Keywords: Climate change; climate economics; greenhouse gas emission reduction; efficiency; equity; Kant; Rawls; no-envy; inequity aversion; risk aversion; polluter pays principle; altruism (search for similar items in EconPapers)
JEL-codes: C71 C72 D61 D63 Q54 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2001-01, Revised 2001-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

Published, International Environmental Agreements, 2, 23-48

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