Controlling Global Warming

Controlling Global Warming

Perspectives from Economics, Game Theory and Public Choice

New Horizons in Environmental Economics series

Edited by Christoph Böhringer, Michael Finus and Carsten Vogt

In this exhaustive study, the authors break new ground by integrating cutting edge insights on global warming from three different perspectives: game theory, cost-effectiveness analysis and public choice. For each perspective the authors provide an overview of important results, discuss the theoretical consistency of the models and assumptions, highlight the practical problems which are not yet captured by theory and explore the different applications to the various problems encountered in global warming. They demonstrate how each perspective has its own merits and weaknesses, and advocate an integrated approach as the best way forward. They also propose a research agenda for the future which encompasses the three methods to create a powerful tool for the analysis and resolution of global pollution problems.

Chapter 3: Economic impacts of carbon abatement strategies

Christoph Böhringer and Andreas Löschel

Subjects: economics and finance, environmental economics, environment, environmental economics


Christoph Bohringer and Andreas Loschel 1. INTRODUCTION Despite the withdrawal of the USA under President Bush in March 200 1, the Kyoto Protocol marks a milestone in climate policy history. For the first time, industrialized countries as listed in Annex B of the Protocol have agreed on quantified emissions limitations and reduction objectives. The negotiations around the Protocol have been dominated by two fundamental issues whose reconciliation is crucial for any substantial international agreement on climate protection: efficiency in terms of overall abatement costs, and equity in terms of a ‘fair’ distribution of these costs across countries. These issues are relevant in other fields of international environmental policy as well, but their importance in the greenhouse context is unique, given the potential magnitude of abatement costs at stake. With regard to efficiency, the Kyoto Protocol allows for the use of emissions trading, joint implementation (JI) or the clean development mechanism (CDM) in order to reduce total costs of abatement. However, the permissible scope and institutional design of these flexible instruments are controversial among signatory parties. Several Annex B parties, such as the EU, are concerned that the extensive use of flexible instruments will negatively affect the environmental effectiveness of the Kyoto Protocol. They stress the principle of supplementarity and call for ceilings on the amount by which national reduction targets can be achieved through the use of flexible instruments foreseen by the Kyoto Protocol (Baron et al. 1999). Other Annex B parties, such as the USA, have been strongly opposed...

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