A NO CAP BUT TRADE PROPOSAL FOR GREENHOUS GAS EMISSION REDUCTION TARGETS FOR BRAZIL, CHINA AND INDIA

Katrin Rehdanz and Richard Tol

No FNU-68, Working Papers from Research unit Sustainability and Global Change, Hamburg University

Abstract: One problem in international climate policy is the refusal of large developing countries to accept emission reduction targets. Brazil, China and India together account for about 20% of today’s CO2 emissions. We analyse the case in which there is no international agreement on emission reduction targets, but countries do have domestic targets, and trade permits across borders. We contrast two scenarios. In one scenario, Brazil, China and India adopt their business as usual emissions as their target. In this scenario, there are substantial exports of emission permits from developing to developed countries, and substantial economic gains for all. In the second scenario, Brazil, China and India reduce their emissions target so that they have no net economic gain from permit trade. Here, developing countries do not accept responsibility for climate change (as they bear no net costs), but they do contribute to emission reduction policy by refusing to make money out of it. Adopting such break-even targets can be done at minor cost to developed and developing countries (roughly $2 bln/year each in extra costs and foregone benefits), while developing countries are still slightly better off than in the case without international emissions trade. This result is robust to variations in scenarios and parameters. It contrasts with Stewart and Wiener (2003) who propose granting “hot air” to developing countries to seduce them to accept targets. In 2020, China and India could reduce their emissions by some 10% from the baseline without net economic costs.

Keywords: climate policy; developing countries; emission permits; emission reduction targets (search for similar items in EconPapers)
JEL-codes: Q54 (search for similar items in EconPapers)
Pages: 18 pages
Date: 2005-07, Revised 2005-07
New Economics Papers: this item is included in nep-cna, nep-cwa, nep-ene and nep-env
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Published, Climate Policy, 8 (3), 293-304

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