A Sectoral Approach Balancing Global Efficiency and Equity

• Published in: Environmental & resource economics Vol. 53; no. 4; pp. 533 - 552
• Main Authors: Meunier, Guy, Ponssard, Jean-Pierre
• Format: Journal Article
• Language: English
• Published: Dordrecht Springer Netherlands 01.12.2012; Springer Nature B.V; Springer
• Subjects: Agreements; Carbon; Carbon dioxide; Cement; Climate change; Climate policy; Competitiveness; Design; Developing countries; Economic growth; Economic models; Economic Policy; Economics; Economics and Finance; Emissions trading; Environmental Economics; Environmental Law/Policy/Ecojustice; Environmental Management; Environmental policy; Equity; Humanities and Social Sciences; Industrialized countries; Industrialized nations; International agreements; International trade; LDCs; Mitigation; Permits; Taxonomy; Welfare; D63; Q56; Competitiveness; International agreement; Equity; H23; Climate policy; F18; Sectoral approach
• ISSN: 0924-6460; 1573-1502
• DOI: 10.1007/s10640-012-9575-1

This paper explores the idea that a properly designed sectoral approach could be the answer to two sets of constraints that hinder international agreements on climate change, namely a genuine concern from developing countries for economic growth and competitiveness issues from industrialized countries. Our sectoral approach builds on three premises: (i) cap-and-trade systems are established in industrialized countries and intensity targets in developing countries, (ii) sectors subject to international trade abide by the rules of the countries in which they trade and (iii) a fraction of the revenues from permits in industrialized countries go towards carbon mitigation in developing countries. We design an economic model that features interactions in three carbon-intensive sectors (two of which are internationally traded) and two countries (an industrialized country and a developing country). Two scenarios are constructed: an Enhanced Sectoral Approach, which refers to our proposal, and a Global Cap, which implements a uniform CO 2 price. We compare the two scenarios in terms of total welfare and equity. It is shown that, for a minor global welfare loss, the Enhanced Sectoral Approach ranks high in terms of equity for emerging countries. This approach also eliminates competitiveness and leakage issues.