Ratcheting Up Paris

• Authors: Humberto Llavador, John E. Roemer and Thomas Stoerk
• European Economic Review..

The Paris Agreement is designed to increase climate ambition gradually through a process of ratcheting up. What is the plausible endpoint of this process? To answer this question, we develop a tractable integrated assessment model in which countries interact through a decentralized general equilibrium and negotiate unanimously over a global carbon budget, with all mitigation implemented via a global carbon price. We prove the existence and uniqueness of a unanimous international agreement on global emissions, in which carbon pricing revenues are redistributed across countries in proportion to marginal climate damages. In a quantitative application for 154 countries, the resulting equilibrium limits global mean surface temperature change to 1.51°C, at a carbon price of 320 USD/tCO₂. The associated international transfers of carbon pricing revenue are progressive toward lower-income countries and amount to about 0.8% of global GDP annually — an order of magnitude larger than the Paris Agreement’s climate finance target.