Tradable emission quotas, technical progress and climate change

Abstract

ABSTRACTThe paper reviews two alternative rules for allocation of property rights in a global greenhouse-gas emissions budget, assuming implementation of a tradablequota arrangement. These are the per capita rule and no-regrets-for-the-South (NRFTS) rule. The operation of a quota market under these alternative regimes is simulated on a spreadsheet, using 1990–1 data from 125 countries. A significant result is that once the South has secured a quota allocation based on the per capita principle, it stands collectively to lose from progress in abatement technology because of the strong link from technical progress to the world market price of quota. The more restricted NRFTS rule gives the South smaller gains from the quota system, but enables it to retain some of the rents from its own technical progress. Some implications for the South's position in future negotiations are noted.