Optimal Global Dynamic Carbon Abatement

I investigate the optimal distribution of greenhouse gas emission reductions over time and between regions. Chichilnisky and Heal (1994) and Sandmo (2006) have shown that optimal marginal abatement costs should differ between different countries if no lump-sum transfers between those countries are possible. I extend their static result to a dynamic stock externality, so that it can be applied to climate change. I then use the integrated assessment model FUND to compute optimal marginal carbon abatement costs schedules for sixteen world regions for the next century. I find that if lump-sum transfers are not possible, rich countries should mitigate more and poor countries less. Ruling out lump-sum transfers has an ambiguous effect on optimal global emission reductions: under standard assumptions about inequality aversion, optimal emission reductions are lower if lump-sum transfers between countries are ruled out. In a sensitivity analysis, I assume a more inequality-averse decision maker. In this scenario, optimal emission reductions are larger when lump-sum transfers are ruled out.

Speaker: David Anthoff, University of California, Berkeley