CFDP 2172

Global Unanimity Equilibrium on the Carbon Budget


Publication Date: March 2019

Pages: 33


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: Unanimity equilibrium, Climate change, Carbon pricing, Integrated assessment models

JEL Classification Codes: Q5, D5, D6, H0