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Regional variation, holdouts, and climate treaty negotiations

Published online by Cambridge University Press:  01 August 2013

J. Scott Holladay  and
Michael A. Livermore
J. Scott Holladay*
Affiliation:
Department of Economics, University of Tennessee; Fellow, Howard H. Baker Center
Michael A. Livermore
Affiliation:
Associate Professor of Law, University of Virginia School of Law
*
J. Scott Holladay, Department of Economics, University of Tennessee; Fellow, Howard H. Baker Center, Tel.: 865-974-3303 [email protected]
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Abstract

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We develop a model of international agreements to price a transboundry externality and provide a new heuristic to aid in interpreting negotiation behavior. Under conservative assumptions, a country’s net benefits will be positive under an efficient pollution price if its share of global damages is less than half its share of worldwide abatement costs. We solve for a permit allocation scheme consistent with that heuristic such that every region will have positive net benefits in an agreement to price the pollution externality at the globally efficient level. We then apply this framework to climate change using regional data from Integrated Assessment Models and test the feasibility of a global climate change treaty. The results indicate that several regions have positive net benefits from a globally efficient price on carbon, including Western Europe, South Asia (including India), and Latin America. We then solve for a permit allocation scheme that should produce worldwide agreement on a climate treaty. Using the same model, we show that differential carbon taxes aimed at producing universal agreement would produce tax rate differences of an order of magnitude. We also argue that shares of global GDP might be an appropriate proxy for exposure to climate damages and find that a global climate treaty would be cost-benefit justified for all countries without transfers when that assumption is used.

Keywords

climate changedeveloping countriesinternational climate policytransboundry pollution

JEL classification

Q54: Climate • Natural Disasters and Their Management • Global Warming F51: International Conflicts • Negotiations • Sanctions H23: Externalities • Redistributive Effects • Environmental Taxes and Subsidies
Type
Article
Information
Journal of Benefit-Cost Analysis , Volume 4 , Issue 2 , 01 August 2013 , pp. 131 - 157
Copyright
Copyright © Society for Benefit-Cost Analysis 2013

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