Journal of Economic Literature (JEL) Code(s)
Q5, D5, D6, H0
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.
Llavador, Humberto and Roemer, John E., "Global Unanimity Equilibrium on the Carbon Budget" (2019). Cowles Foundation Discussion Papers. 85.