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C & C - contraction and convergence of carbon emissions: the economic implications of permit trading

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  • Böhringer, Christoph
  • Welsch, Heinz

Abstract

In the context of climate protection policy it has been suggested that global CO2 emissions should be reduced significantly (contraction) and that per capita emissions should gradually be equalized across countries (convergence). This paper uses a dynamic multi-region computable general equilibrium model of the world economy to assess the economics of ?Contraction and Convergence? (C&C). In comparing a regime of tradable and non-tradable emission rights for implementing C&C we find that the former allows to reduce long-term costs of abatement in terms of Hicksian equivalent variation in lifetime income by more than 50% percent in comparison with the latter. Under a tradable permit regime some developing countries improve their economic welfare even beyond non-abatement baseline levels. A decomposition of the general equilibrium effects associated with C&C shows that changes in the terms of trade constitute a key determinant of the overall welfare effects.

Suggested Citation

  • Böhringer, Christoph & Welsch, Heinz, 1999. "C & C - contraction and convergence of carbon emissions: the economic implications of permit trading," ZEW Discussion Papers 99-13, ZEW - Leibniz Centre for European Economic Research.
    • Handle: RePEc:zbw:zewdip:5230
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    References listed on IDEAS

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    1. Peter Bohm & Bjorn Larsen, 1994. "Fairness in a tradeable-permit treaty for carbon emissions reductions in Europe and the former Soviet Union," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 4(3), pages 219-239, June.
    2. Welsch, Heinz, 1993. "A CO2 agreement proposal with flexible quotas," Energy Policy, Elsevier, vol. 21(7), pages 748-756, July.
    3. Böhringer, Christoph & Jensen, Jesper & Rutherford, Thomas F., 1999. "Energy market projections and differentiated carbon abatement in the European Union," ZEW Discussion Papers 99-11, ZEW - Leibniz Centre for European Economic Research.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Gielen, D. J. & Yagita, H., 2002. "The long-term impact of GHG reduction policies on global trade: A case study for the petrochemical industry," European Journal of Operational Research, Elsevier, vol. 139(3), pages 665-681, June.
    2. Christoph Bohringer & Heinz Welsch, 2006. "Burden sharing in a greenhouse: egalitarianism and sovereignty reconciled," Applied Economics, Taylor & Francis Journals, vol. 38(9), pages 981-996.

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    More about this item

    Keywords

    climate protection; international equity; emissions trading; economic welfare; computable general equilibrium modeling;
    All these keywords.

    JEL classification:

    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
    • Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy
    • Q2 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation

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