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International climate regime beyond 2012 - are quota allocation rules robust to uncertainty?

Author

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  • Lecocq, Franck
  • Crassous, Renaud
Abstract
Bringing the United States and major developing countries to control their greenhouse gas emissions will be the key challenge for the international climate regime beyond the Kyoto Protocol. But in the current quantity-based coordination, large uncertainties surrounding future emissions and future abatement opportunities make the costs of any commitment very difficult to assess ex ante, hence a strong risk that the negotiation will be stalled. The authors use a partial equilibrium model of the international allowance market to quantify the economic consequences of the main post-Kyoto quota allocation rules proposed in the literature and to assess how robust these consequences are to uncertainty on future population, economic, and emissions growth. They confirm that, regardless of the rule selected, the prices of allowances and the net costs of climate mitigation for all parties are very sensitive to uncertainty, and in some scenarios very large. This constitutes a strong barrier against adopting any of these schemes if no additional mechanism is introduced to limit the uncertainty on costs. On the other hand, parties'preferred (least-cost) rules are essentially robust to uncertainty. And although these preferences differ across countries, the authors'analysis suggest some bargaining is possible if developing countries make a commitment and join the allowance market earlier in exchange for tighter quotas in the North. This underscores the importance of the rules governing the entry of new parties into the coordination. But the magnitude of the win-win potential strongly depends on how different abatement costs are assumed to be between industrial and developing countries, and on how long that gap is assumed to persist.

Suggested Citation

  • Lecocq, Franck & Crassous, Renaud, 2003. "International climate regime beyond 2012 - are quota allocation rules robust to uncertainty?," Policy Research Working Paper Series 3000, The World Bank.
    • Handle: RePEc:wbk:wbrwps:3000
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    References listed on IDEAS

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    Cited by:

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    2. Peterson, Sonja, 2006. "Uncertainty and economic analysis of climate change: a survey of approaches and findings," Open Access Publications from Kiel Institute for the World Economy 3778, Kiel Institute for the World Economy (IfW Kiel).
    3. Franck Lecocq & Jean-Charles Hourcade, 2016. "Unspoken Ethical Issues in the Climate Affair: Insights from a Theoretical Analysis of Negotiation Mandates," Studies in Economic Theory, in: Graciela Chichilnisky & Armon Rezai (ed.), The Economics of the Global Environment, pages 311-340, Springer.
    4. Jean Charles Hourcade & P.-R. Shukla & Sandrine Mathy, 2005. "Cutting the Climate-Development Gordian Knot - Economic options in a politically constrained world," Working Papers hal-00866572, HAL.
    5. Pan, Xunzhang & Teng, Fei & Wang, Gehua, 2014. "A comparison of carbon allocation schemes: On the equity-efficiency tradeoff," Energy, Elsevier, vol. 74(C), pages 222-229.
    6. Aurélie Méjean & Franck Lecocq & Yacob Mulugetta, 2015. "Equity, burden sharing and development pathways: reframing international climate negotiations," International Environmental Agreements: Politics, Law and Economics, Springer, vol. 15(4), pages 387-402, November.
    7. Marschinski, Robert & Lecocq, Franck, 2006. "Do intensity targets control uncertainty better than quotas ? Conditions, calibrations, and caveats," Policy Research Working Paper Series 4033, The World Bank.
    8. Peterson, Sonja, 2004. "The contribution of economics to the analysis of climate change and uncertainty: a survey of approaches and findings," Kiel Working Papers 1212, Kiel Institute for the World Economy (IfW Kiel).
    9. Xunzhang Pan & Fei Teng, 2017. "Assessment of China’s Mitigation Targets in an Effort-Sharing Framework," Sustainability, MDPI, vol. 9(7), pages 1-16, June.
    10. Stefan Weishaar, 2007. "CO 2 emission allowance allocation mechanisms, allocative efficiency and the environment: a static and dynamic perspective," European Journal of Law and Economics, Springer, vol. 24(1), pages 29-70, August.

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