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Regional Burden Sharing of Carbon Mitigation Cost and Output-Based Allocation of Emissions

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  • Dissou, Yazid

Abstract

The issue of fair burden sharing among countries or regions is at the core of discussions surrounding the implementation of environmental agreements. In the context of a decentralized political system within a federal country, asymmetrical profiles of regional industries may hinder a regional consensus on implementing international environmental agreements. Besides, output-based allocation (OBA) of free permits to firms has been suggested by several authors as a solution to the uneven sectoral distribution of abatement costs in a given economy, at the expense of a high marginal abatement cost though. This paper examines the implications of providing more free permits to the most emissions-intensive region within a politically decentralized federation in the context of an OBA scheme. It develops a two-region multisector intertemporal general equilibrium model with an application to the Canadian economy. The simulation results suggest that the regional permit allocation scheme does have an impact on efficiency in an OBA context. When more permits are given to the most emissions-intensive region in an OBA scheme, the marginal abatement cost is higher and more distortions are introduced into the economy. The most emissions-intensive region is hurt more than the less-emissions-intensive region, which benefits from resource reallocation and the substitution towards the non-energy-intensive industry.

Suggested Citation

  • Dissou, Yazid, 2013. "Regional Burden Sharing of Carbon Mitigation Cost and Output-Based Allocation of Emissions," Conference papers 332342, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    • Handle: RePEc:ags:pugtwp:332342
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    References listed on IDEAS

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