Global Carbon Pricing Among Countries With Different Economic Prospects

Principles of fairness suggest that the envisaged successor agreement to the Kyoto Protocol should be based on the polluter pays principle. It should also take into account that emerging economies and developing countries will, in the next few decades, put greater emphasis on economic growth than on investing in emissions cuts. To analyse the implications of these two requirements, we estimate regional carbon prices that are based on regional cost-benefit analysis and strict liability of countries for damages caused by their emissions. Our estimates indicate a big gap between the carbon prices chosen by OECD countries and those of other countries. Because regional carbon pricing is probably neither feasible nor desirable we introduce transfer payments to make a globally uniform carbon price more acceptable. We estimate that OECD countries would currently have to transfer US$27 billion per year to compensate the rest of the world for implementing a global carbon price of $35/tCO2.

Landis, Florian and Thomas Bernauer (2012), Global Carbon Pricing Among Countries With Different Economic Prospects, CEPE Working paper series.