Economic Size and The Scope Of Control Over Greenhouse Gas Emissions

I examine the implications of variance and skewness in the distribution of GDP for the properties of the non-cooperative equilibrium in greenhouse gas emissions. The key consequence of these features of the GDP distribution is that some countries have much greater scope of control over global emissions than others. This has a number of interesting implications. First, global emissions are decreasing in the variance of the GDP distribution but emissions for an individual country of any given GDP are increasing in that variance. Second, the scope-of-control effect on technology choices underlies a technique effect that can produce an environmental Kuznets curve across countries. Third, very large countries may under-emit relative to the first-best solution as a best response to the high-emissions-technology choices made by smaller countries. Fourth, the prospects for cooperative action – as determined by the potential gains from trade available from emissions trading – are increasing in the skewness of the GDP distribution because of the large induced asymmetry in marginal abatement costs across countries in the non-cooperative equilibrium. JEL Classification: Q53, Q56