Kiel Working Papers, Kiel Institute for World Economics
No 1380:
Distribution Matters ; Taxes vs. Emissions Trading in Post Kyoto Climate Regimes
Sonja Peterson and Gernot Klepper
Abstract: The policy instruments for emissions reductions will be an
integral part of a Post Kyoto Climate Regime. In this paper we compare a
harmonized international carbon tax to a cap and trade system with
different allocation rules for the emission caps. The caps are based either
on the requirement for equal percentage reductions in all countries or the
“contraction and convergence” proposal that leads to converging per capita
emission rights. The quantitative analysis is based on simulations with the
CGE model DART. The harmonized carbon tax tends to favor industrialized
countries but is less favorable to developing countries. The welfare
effects of a cap and trade system depend crucially on the allocation rule
for emission rights. The “contraction and convergence” approach leads to
welfare gains for countries like China, India and Subsaharan Africa whereas
it imposes welfare losses upon industrialized countries which are larger
than those under other cap and trade schemes or a tax scenario. Independent
from the allocation rule that is used regions exporting fossil fuels
experience strong welfare losses from the reduction in the demand for
fossil fuels and the fall in prices that results from the imposition of the
international climate policies.
Keywords: Post Kyoto, emission targets, emission trading, taxes, distribution; (follow links to similar papers)
JEL-Codes: H22,; H23,; H87,; D58,; Q48,; Q52; (follow links to similar papers)
26 pages, September 2007
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