A Global Carbon Market and the Allocation of Emission Rights

Given that the 2°C target implies that a certain budget of emissions may be permitted, there is debate over how these emission rights could be allocated among the nations. The national emission reduction commitments and possible allocation rules of an emission budget play a major role in international negotiations. The idea prevails that these allocations will determine the distribution of the burden of climate protection. In this chapter we emphasise the importance of an international emission trading scheme (ETS). We also analyse a number of allocation schemes and their influence on regional mitigation costs based on an intertemporal general equilibrium model. Major differences can be discerned between the schemes pursuing the “allocation of emission rights” versus those based on “allocation of reduction efforts” relative to a baseline level. The allocation rule however, accounts for only some of the overall mitigation costs: the full assessment of these costs is much more complex, depending also on technological progress and the effect on trade of the devaluation of fossil resources resulting from emission restrictions. We evaluate the ethical presumptions and their implications on the assessment of the different allocation schemes in terms of justice. We also discuss the institutional requirements for a global cap and trade system.

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