Environmental and Resource Economics

, Volume 53, Issue 4, pp 533–552 | Cite as

A Sectoral Approach Balancing Global Efficiency and Equity

Article

Abstract

This paper explores the idea that a properly designed sectoral approach could be the answer to two sets of constraints that hinder international agreements on climate change, namely a genuine concern from developing countries for economic growth and competitiveness issues from industrialized countries. Our sectoral approach builds on three premises: (i) cap-and-trade systems are established in industrialized countries and intensity targets in developing countries, (ii) sectors subject to international trade abide by the rules of the countries in which they trade and (iii) a fraction of the revenues from permits in industrialized countries go towards carbon mitigation in developing countries. We design an economic model that features interactions in three carbon-intensive sectors (two of which are internationally traded) and two countries (an industrialized country and a developing country). Two scenarios are constructed: an Enhanced Sectoral Approach, which refers to our proposal, and a Global Cap, which implements a uniform CO2 price. We compare the two scenarios in terms of total welfare and equity. It is shown that, for a minor global welfare loss, the Enhanced Sectoral Approach ranks high in terms of equity for emerging countries. This approach also eliminates competitiveness and leakage issues.

Keywords

Climate policy International agreement Sectoral approach Equity Competitiveness 

JEL Classification

D63 Q56 F18 H23 

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Copyright information

© Springer Science+Business Media B.V. 2012

Authors and Affiliations

  1. 1.Economics DepartmentEcole PolytechniquePALAISEAU CedexFrance
  2. 2.INRA–UR1303 ALISSIvry-sur-seineFrance

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