Schemes for the Regional Allocation of Emission Allowances under Stringent Global Climate Policy

Abstract

In this chapter we investigate burden-sharing regimes for the allocation of greenhouse gas emission reduction obligations under a 2 °C long-term climate policy framework, and present our findings derived from an integrated energy-economy-climate assessment. In our analysis we focus on two different allocation schemes: a per-capita-based scheme, and a scheme aiming at equalising the climate policy costs among the world regions with respect to their economic capability. We find that, under a per capita based burden-sharing scheme, the amount of carbon certificates traded on the carbon market yields a cumulative capital transfer of 20 trillion US$ between 2020 and 2050, which is on average 680 billion US$/year. The main certificate selling regions are Africa and India and the main buyers South America and the Middle East. Conversely to the per capita based scheme, a burden-sharing regime that aims at equalising regional climate policy costs leads to a cumulative carbon market capita flow until 2050 of about one quarter with average annual certificate transactions worth 180 billion US$/year, with China and Other Developing Asia being the major certificate sellers and Western Europe the main buyer. Comparing both burden-sharing schemes with regard to the compensation of non-OECD countries’ climate change mitigation efforts via revenues from the global carbon certificate market reveals an advantage of the scheme based on climate policy costs over the per capita scheme, because the policy cost related scheme covers 12 % of the non-OECD’s climate policy costs of the first half of this century, whereas 4 % under the per capita scheme only.