Paper #1646

Title:

Global unanimity agreement on the carbon budget

Authors:

Humberto Llavador and John E. Roemer

Date:

April 2019

Abstract:

Carbon budgets are a useful way to frame the climate mitigation challenge and much easier to agree upon than the allocation of emissions. We propose a mechanism with countries agreeing on the global carbon budget, while the decision to emit is decentralized at the country level. The revenue is collected in a global fund and allocated according to endogenously defined weights proportional to the marginal cost of climate change. The proposal features a unanimous agreement of the national citizenries of the world and global Pareto efficiency. We run a simulation in the spirit of the Paris Agreement, with zero emissions after 2055. At the Global Unanimity Equilibrium, permits are priced at 90$/tC, yielding 1.3 trillion dollars annually. Africa, India and the less developed countries in Asia are the only net recipients, while the US and China are the largest net contributors.

Keywords:

carbon budget, emissions, international agreement, permits, climate change

JEL codes:

Q54, Q56, Q58, F53, F64

Area of Research:

Microeconomics / Labour, Public, Development and Health Economics

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