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Global unanimity agreement on the carbon budget

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  • Llavador, Humberto
  • Roemer, John
  • Stoerk, Thomas

Abstract

This paper analyzes a stylized model of the global economy in which countries must agree on the carbon budget while the decision on the level of carbon emissions is decentralized, with firms treating their emissions as a production input for which a uniform price is charged. The revenue accumulates in a global fund and is returned to global citizens according to national shares that are announced ex ante. The vector of country shares for the distribution of the carbon revenue assures that countries agree by unanimity on the carbon budget. The equilibrium exhibits the following desired features: (1) the global emissions level is set by unanimous agreement; (2) the demand to emit carbon is decentralized and, hence, there is no need to determine the distribution of permits; and (3) the equilibrium is Pareto efficient. We explore the implication of the model in an application based on RICE-2010.

Suggested Citation

  • Llavador, Humberto & Roemer, John & Stoerk, Thomas, 2022. "Global unanimity agreement on the carbon budget," LSE Research Online Documents on Economics 123736, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:123736
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    File URL: http://eprints.lse.ac.uk/123736/
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    More about this item

    Keywords

    carbon price; climate economics; climate policy; international environmental agreement;
    All these keywords.

    JEL classification:

    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
    • F53 - International Economics - - International Relations, National Security, and International Political Economy - - - International Agreements and Observance; International Organizations

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