EMF WP 12.2: Carbon Coalitions: The Cost and Effectiveness of Energy Agreements to Alter Trajectories of Atmospheric Carbon Dioxide Emission

In this paper we examine the cost and effectiveness of various potential forms of international agreement to reduce fossil fuel carbon emissions and the associated distribution of direct costs and benefits to participation. We examine the effect of different patterns of entry into an agreement to reduce potential future emissions. Further, we examine the implication of emissions for atmospheric CO2 concentrations. We have made no attempt to assess the indirect benefits of emissions reductions through changes in the rate and timing of climate change. We observe a significant potential for a “drop out” problem if developing nations perceive that they are economically harmed by participation. Wealth transfers associated with various allocations of emissions rights may be of significantly greater magnitude than the costs of emissions reductions themselves. Commonly suggested allocation schemes do not generally transfer wealth to developing nations in amounts which mirror their costs of participation. As a consequence of this analysis, it would be difficult to imagine any protocol which could be constructed which would not need significant renegotiation over time. On the other hand it is possible that the OCED, Eastern Europe and the former Soviet Union, and China jointly control sufficient resources and emissions that were they immediately to reach agreement on a protocol to stabilize emissions it would result in only slightly higher long-term (2095) atmospheric CO2 concentrations than had the entire world participated. Finally, we quantify that value of accelerated technology development and technology transfer from protocol participants to non-participants.