North-South Convergence and the Allocation of CO2 Emissions

• Authors: Humberto Llavador.
• BSE Working Paper: 493 | September 15
• Keywords: growth , CO2 emissions , climate change , sustainability , Convergence , North-South
• JEL codes: D62, D63, D90, O40, O40, Q54, Q55, Q56, Q58
• growth
• CO2 emissions
• climate change
• sustainability
• Convergence
• North-South

We postulate a two-region world, comprised of North (calibrated after the US) and South (calibrated after China). Our optimization results show the compatibility of the following three desiderata: (1) Global CO2 emissions follow a conservative path that leads to the stabilization of concentrations at 450 ppm. (2) North and South converge to a path of sustained growth at 1% per year (28.2% per generation) in 2075. (3) During the transition to the steady state, North also grows at 1% per year while South’s rates of growth are markedly higher. The transition paths require a drastic reduction of the share of emissions allocated to North, large investments in knowledge, both in North and South, as well as very large investments in education in South. Surprisingly, in order to sustain North’s utility growth rate, some output must be transferred from South to North during the transition. Although undoubtedly subject to many caveats, our results support a degree of optimism by providing prima facie evidence of the possibility of tackling climate change in a way that is fair both across generations and across regions while allowing for positive rates of human development.