Equity and carbon emissions trading: a model analysis

Carbon emissions trading is a key instrument of climate policy. It helps to bring about emission reductions in that place where they are least costly. However, fair burden sharing is about more than just cost-efficiency. While focussing on the instrument of emissions trading, this paper touches upon equity issues that frame decisions on emission rights allocation. The analysis is based on the ICLIPS model. The model study gives new insights on how the equal per capita allocation principle influences the intertemporal emission paths and about the distribution of mitigation costs in the long run. Apart from the intuitive economic evaluation of model results, this paper also attempts to provide an evaluation from an equity point of view. For a variety of assumptions, model results show that several developing countries could benefit considerably from joining an international emissions trading system, thereby becoming potential collaborators in post-Kyoto climate agreements.