Global Unanimity Agreement on the Carbon Budget

• Authors: Humberto Llavador.
• BSE Working Paper: 112195 | April 19
• Keywords: climate change , carbon budget , emissions , international agreement , permits
• JEL codes: Q54, Q56, Q58, F53, F64
• climate change
• carbon budget
• emissions
• international agreement
• permits

Carbon budgets are a useful way to frame the climate mitigation challenge and much easier to agree upon than the allocation of emissions. We propose a mechanism with countries agreeing on the global carbon budget, while the decision to emit is decentralized at the country level. The revenue is collected in a global fund and allocated according to endogenously defined 10 weights proportional to the marginal cost of climate change. The proposal features a unanimous agreement of the national citizenries of the world and global Pareto efficiency. We run a simulation in the spirit of the Paris Agreement, with zero emissions after 2055. At the Global Unanimity Equilibrium, permits are priced at 90$/tC, yielding 1.3 trillion dollars annually. Africa, India and the less developed countries in Asia are the only net recipients, while the US 15 and China are the largest net contributors.