Distribution of decarbonization costs and externality regulation

Abstract

The transformation of the economy to a low-carbon level is constrained by a high level of costs and the problem of balancing interests in the distribution of these costs among participants. The paper proposes to use the corporate game theory, in particular the Shapley value, for cost allocation. In contrast to the classical division of additional utility for cooperative games, in this case the costs are divided, and the concave cost function is minimized. The Shapley value coordinates determine the center of gravity of the multidimensional figure of possible cost distributions and are associated with a formal representation of fairness without taking into account financial opportunities and additional, historically established conditions. A comparative analysis of two approaches (carbon tax and carbon credits) to managing negative externalities shows that it is preferable to use the Shapley value for the base allocation of carbon credits. Both approaches to emissions regulation are constrained by institutional barriers to the transformation of the economy: the level of development of national institutions, the achievement of international agreements in the face of economic competition and political confrontation, and the lack of objective information. The authors come to the conclusion that the use of the Shapley value can contribute to the objective formation of quotas and reduce barriers to decarbonization.