Constraining Equitable Allocations of Tradable CO2 Emission Quotas by Acceptability

Since the signing of the Kyoto Protocol, future commitments are likely to beframed in terms of tradable quotas. The discussions on the allocation of thequotas among countries will be based – at least partly – on rulescorresponding to a certain conception of equity. For instance, allocatingquotas in direct proportion to population, in relation to GDP or accordingto past emissions has been advocated. Taking a long term perspective, wecompute such allocations of tradable quotas with a dynamic (closed-loop)model. The total amount of quotas to be distributed at each periodcorresponds to the world optimal amount of emissions to be realized at eachperiod. We observe that most “equitable” allocation rules do not make theagreement individually rational for every country along the entire timepath. We then propose a mechanism which determines allocations of quotasthat are as close as possible to any “equitable” allocation while satisfyingindividual rationality.

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