2012 december 7 yonsei
TRANSCRIPT
REDUCING POLLUTION LEVELS
BY THE OECD COUNTRIES:
WHICH COUNTRIES SHOULD BEAR THE BRUNT?
December 7, 2012
Alexandre Repkine
COPENHAGEN ACCORD
United Nations Framework Convention on
Climate Change
120 countries
EU
Pledges to reduce CO2 emission levels by 2020
Opportunity costs are a problem
CO2 REDUCTION VERSUS GDP
Reducing CO2 levels comes at an opportunity cost
Direct investment outlays for cleaning equipment
Multiplier effect
What is the opportunity cost of reducing CO2 emissions by 1 ton in terms of the foregone GDP?
Tempting to require each country to reduce its CO2 emission levels by a uniform fraction, but is it the cheapest way?
Fairness dimensions Fairness in terms of the GDP opportunity costs
Fairness in terms of the individual reduction targets
Fairness in terms of the overall contribution
MEASURING OPPORTUNITY COSTS OF CO2
REDUCTION IN TERMS OF GDP
is the production
possibilities set: contains all
combinations of real GDP and CO2
emissions reduction feasible if the
vector of inputs is used.
Point A: current combination of
GDP and level of CO2 emissions
reduction, inefficient
Points B, C: efficient production
If a country is producing efficiently
at point C on the PPF, the only way
to reduce CO2 emissions by DE is to
sacrifice some portion of GDP CD
xP
x
D E
DE
CDOC
PPF
QUESTIONS TO ANSWER
What is the size of the costless reduction of
CO2 in the OECD countries?
What are the GDP opportunity costs of CO2
reduction for individual countries?
Which countries reduce CO2 cheaply?
Which countries reduce CO2 expensively?
What are the alternative scenarios of reducing
CO2 in the OECD countries?
ESTIMATION METHODOLOGY
Fare et al. (1993), Shephard’s duality lemma:
the opportunity costs of any two outputs can be
measured as a ratio of the two inputs’ shadow
prices
Equivalent to computing the slope of the PPF in
the two-dimensional space
Key assumption: one output’s shadow price is
equal to its market price
ESTIMATION METHODOLOGY
Main inference tool:
= shadow price of carbon dioxide reduction
= shadow price of another output, assumed
equal to its market price
= output distance function
mapping inputs and outputs
into the radial efficiency
measure in terms of outputs
yO
cO
pp yc
cp
yp
xPy
yxO
:inf,
EMPIRICAL FRAMEWORK
Distance function is specified in terms of
mapping of inputs and outputs into a radial
efficiency measure
Inputs: capital (USD), labor, energy (kt oil eq.)
Outputs: real GDP (USD), CO2 emissions (tons)
1,0
EMPIRICAL FRAMEWORK
Translog specification of the distance function:
Homogeneity of degree 1 in outputs:
Symmetry assumptions:
Y=number of outputs, K=number of inputs
j
Y
i
K
j
iijj
K
i
K
j
iijj
Y
i
Y
j
iij
K
i
ki
Y
i
ii xyxxyyxyyxO lnlnlnlnlnlnlnln,ln1 11 11 111
0
11
Y
i
i
Y
i
Y
j
ij
1 1
0
Y
i
K
j
ij
1 1
0
jiijjiijjiij ,,
ESTIMATION OF DISTANCE FUNCTION
The translog distance function parameters are
estimated by solving a linear program:
Kix
yxO
Yiy
yxO
yxO
ts
yxOMax
i
i
..1,0ln
,ln
..1,0ln
,ln
0,ln
..
,ln
Efficiency measure is within [0,1]
Non-negative shadow price of real GDP
Non-positive shadow price of CO2
emissions
= distance function yxO
,
SHADOW COST OF REDUCING CO2
The shadow cost of CO2 reduction by 1 ton
varies with the values of real GDP and CO2
emissions
We assume that the shadow price of the real
GDP is equal to its market price, which is $1
by definition
yO
cO
c
y
dc
dy
dc
dy
y
c
c
y
yO
cO
lnln
lnln
ln
ln
lnln
lnln
DATA SOURCES
Penn World Table: Heston et al. (2011)
Constant prices GDP, USD
Constant prices investment flows, USD
Labor, number of people
World Bank Indicators database: WDI (2012)
CO2 emissions, kilotons
Energy use, oil equivalent, kilotons
DATA SUMMARY GDP (bn USD) CO2
(kt)
Population (mn
people)
Capital (bn USD) Energy use
(kt of oil equivalent)
Australia 718.25 356798 19.79 1687.44 113988
Austria 283.99 67351 8.15 719.04 31090
Belgium 335.91 112202 10.32 859.99 57907
Canada 1092.54 530567 31.91 2217.44 255432
Chile 160.71 60074 15.63 306.72 25762
Denmark 179.32 53535 5.39 412.44 19702
Finland 155.56 60038 5.19 383.65 34302
France 1871.50 388751 62.31 4005.94 260107
Germany 2596.81 830298 82.27 6136.73 341537
Greece 246.47 94811 10.65 604.27 27908
Hungary 148.06 59508 10.13 314.39 26225
Iceland 11.19 2197 0.29 27.90 3611
Ireland 142.32 41403 3.99 302.41 13848
Israel 149.12 59380 6.44 324.34 19389
Italy 1687.91 463280 58.74 4420.39 173087
Japan 3900.31 1300000 127.38 12703.24 512432
Korea 989.01 453773 47.56 3130.47 199010
Luxembourg 30.65 9248 0.45 65.10 3703
Mexico 1160.16 414986 103.69 2522.74 157121
Netherlands 573.14 176656 16.21 1185.57 76729
Zealand 100.38 32764 3.96 188.31 16814
Norway 211.30 40545 4.53 487.78 26176
Poland 484.51 329449 38.76 824.79 96161
Portugal 202.93 61475 10.45 554.80 24182
Spain 1132.06 315656 42.69 2879.35 126318
Sweden 283.94 52484 8.99 508.73 50636
Switzerland 270.92 41364 7.41 769.09 26016
Turkey 619.87 228128 70.40 969.77 81938
UK 1885.89 543156 60.05 3148.59 217655
US 11534.05 5600000 289.87 23947.6 2200000
Source: Heston et al. (2011) Penn World Tables, World Bank Development Indicators (2011); 2005 constant USD where applicable
: top five
US, Germany,
Japan
consistent
“leaders”
US accounts for
40% of OECD
CO2 emissionss
CO2 emissions
related to GDP,
R2=96%
EFFICIENT EMISSIONS:
SPEARMAN RANK CORRELATION STATISTICS Kg CO2
per capita
Kg CO2
per $1 GDP
Kg Energy
Use
per $1 GDP
Kg CO2 per
Kg of oil
equivalent
energy use
GDP
per capita
Kg CO2
per capita
36.65%*** 16.23*** 17.62%*** 55.49***
Kg CO2
per $1 GDP
36.65%*** 52.03%*** 55.69%*** -15.54%***
Kg Energy Use
per $1 GDP
16.23*** 52.03%*** -28.66%*** -15.54%***
Kg CO2 per Kg
of oil
equivalent
energy use
17.62%*** 55.69%*** -28.66%*** -35.62%***
GDP per capita 55.49*** -44.12%*** -15.54%*** -35.62%***
Spearman rank correlation
statistics capture non-linear
relationships, too
Richer in terms of per
capita GDP also means
more CO2 per capita
However, wealthier
countries are emitting and
using energy more
efficiently
Using more energy per $1
GDP associated with less
CO2 emissions per $1 USD
DISTANCE FUNCTION PARAMETERS
Parameter, logs Estimate Parameter, logs Estimate
Constant -14.38 Constant 0.003
GDP 0.93 GDP 0.003
CO2 Emissions 0.07 CO2 Emissions 0.011
Capital 0.18 Capital -0.03
Labor -0.33 Labor -0.03
Energy Use -0.93 Energy Use -0.004
Squared Capital 0.01 Squared Capital 0.02
Squared Labor 0.003 Squared Labor 0.004
Squared Energy Use -0.003 Squared Energy Use 0.01
Squared CO2 -0.002 Squared CO2 0.002
Squared GDP -0.0006 Squared GDP
CO2 ABATEMENT COSTS
Distance Function
(% distance from efficient frontier)
Marginal Abatement Costs
(USD/ton CO2)
Average SD Min Max Average SD Min Max
Australia 99.43% 0.13% 99.15% 99.58% 538.93 271.40 214.96 1155.72
Austria 99.80% 0.03% 99.74% 99.85% 2139.63 607.66 1328.01 3336.28
Belgium 99.42% 0.18% 99.10% 99.64% 636.90 221.14 370.96 1044.57
Canada 99.21% 0.27% 98.68% 99.51% 131.59 67.05 43.60 268.88
Chile 99.35% 0.28% 98.75% 100.00% 127.06 59.86 41.88 223.76
Denmark 99.79% 0.10% 99.57% 99.96% 1511.78 761.45 480.45 2879.65
Finland 99.10% 0.30% 98.52% 99.53% 377.58 83.02 284.64 569.60
France 99.51% 0.12% 99.26% 99.65% 74.19 75.00 0.00 283.78
Germany 99.52% 0.12% 99.31% 99.67% 477.42 108.06 327.58 722.65
Greece 99.67% 0.06% 99.54% 99.78% 843.20 277.35 531.87 1371.30
Hungary 98.92% 0.48% 98.03% 99.47% 208.93 56.58 124.82 304.83
Iceland 99.65% 0.22% 99.06% 100.00% 515.02 93.94 365.32 790.45
Ireland 99.87% 0.07% 99.72% 99.97% 1848.28 1383.89 606.17 4892.85
Israel 99.64% 0.19% 99.42% 100.00% 519.07 89.52 396.09 672.10
Italy 99.68% 0.02% 99.65% 99.74% 1645.53 755.50 839.13 3294.02
Japan 99.68% 0.04% 99.60% 99.76% 2508.77 1157.53 1252.48 5238.27
Korea 98.71% 0.34% 98.27% 99.20% 350.93 121.40 193.56 530.27
Luxembourg 99.74% 0.17% 99.31% 100.00% 3136.77 2624.05 741.89 8448.26
Mexico 99.08% 0.16% 98.73% 99.32% 96.6 23.40 68.56 148.61
Netherlands 99.70% 0.11% 99.44% 99.84% 565.63 141.81 338.04 795.47
Zealand 99.59% 0.17% 99.34% 99.83% 331.65 114.37 173.08 486.27
Norway 99.97% 0.02% 99.92% 100.00% 1964.25 649.48 1365.45 3281.03
Poland 98.06% 0.83% 96.40% 99.07% 69.39 31.71 22.93 128.30
Portugal 99.81% 0.09% 99.68% 100.00% 964.83 323.67 592.32 1472.48
Spain 99.65% 0.04% 99.60% 99.73% 1110.33 717.01 423.86 2590.70
Sweden 99.61% 0.31% 99.04% 100.00% 47.41 60.15 0.00 247.90
Switzerland 99.96% 0.02% 99.93% 100.00% 18442 11706.42 7429.68 50260.96
Turkey 99.66% 0.17% 99.20% 100.00% 19.31 15.81 0.00 70.52
UK 99.79% 0.19% 99.36% 100.00% 236.62 153.88 76.41 525.25
US 99.73% 0.24% 99.21% 100.00% 52.36 54.27 0.00 163.34
Hungary, Korea and
Poland producing least
efficiently
Large variation in
abatement costs: $52
per ton for US,
$2508 for Japan
Switzerland puzzling
Average abatement cost
per 1 ton of CO2 is 795
USD,
excluding Switzerland
Switzerland is already p
roducing very efficiency,
hence high abatement
costs
CO2 ABATEMENT COSTS AND
POLLUTION TRADING PERMITS
Pollution trading permits in the European area were traded at the level of 30~40 EUR in 2006
The market price went down to 8 EUR after the crisis
Why is the market valuation of pollution trading permits so low? Regulation on pollution is still in the making facing problems
with e.g. enforceability
Market valuation may not take into account the multiplier effects of a reduction in productive investment due to efforts aimed at reducing the CO2 pollution
POTENTIAL COSTLESS REDUCTION OF CO2
Potential GDP Increase, million USD Potential CO2 Reduction, kilotons
Average SD Min Max Average SD Min Max
Australia 3992.11 351.81 3644.82 4734.60 2021.92 369.72 1660.39 2815.15
Austria 582.80 106.15 409.64 731.11 139.13 28.68 92.78 185.06
Belgium 1911.43 403.53 1329.28 2602.72 662.53 225.81 365.60 1087.33
Canada 8313.32 1704.61 6191.86 11486.95 4117.57 1119.61 2689.81 6243.41
Chile 1050.94 432.41 0.16 2092.61 399.80 178.93 0.06 807.02
Denmark 375.24 172.20 77.53 666.32 117.24 67.38 20.73 293.71
Finland 1358.14 275.84 874.19 1814.44 545.91 187.79 265.01 925.12
France 9114.89 1251.51 7268.45 11847.28 1934.43 478.18 1318.52 3029.80
Germany 12431.24 2178.01 9385.40 16179.50 4087.84 1233.62 2601.84 6384.49
Greece 810.74 170.20 536.91 1308.16 315.79 74.66 217.91 520.03
Hungary 1530.35 461.65 930.74 2345.96 657.18 308.36 291.92 1263.06
Iceland 39.06 24.52 0.00 104.49 7.76 5.22 0.00 22.39
Ireland 182.96 103.31 41.59 400.30 53.27 26.51 13.04 98.55
Israel 509.58 253.64 0.00 942.87 226.42 119.07 0.00 382.67
Italy 5333.17 335.64 4665.95 6034.70 1468.18 146.46 1155.88 1711.13
Japan 12327.01 1324.53 9873.16 14882.34 3977.05 549.26 2893.74 4824.47
Korea 12286.62 1132.05 10501.37 13801.22 5770.14 1017.33 4145.44 7342.34
Luxembourg 85.64 62.73 0.07 223.06 24.63 16.10 0.03 60.28
Mexico 10645.06 1614.65 7828.40 14458.86 3834.91 688.95 2636.80 5473.75
Netherlands 1666.63 454.62 1067.70 2571.07 534.42 215.66 283.67 1003.53
Zealand 394.89 139.83 198.95 705.57 133.19 54.75 57.19 234.96
Norway 74.30 52.91 0.45 188.77 14.64 10.92 0.08 39.40
Poland 8934.24 2242.46 5810.18 12873.29 6585.74 3138.81 3274.95 12940.90
Portugal 386.89 202.95 0.00 699.13 118.77 64.52 0.00 218.34
Spain 3983.63 477.25 3133.44 4763.81 1114.35 137.33 902.68 1360.18
Sweden 1017.74 724.53 0.35 2236.95 213.81 180.23 0.05 585.83
Switzerland 117.74 52.37 0.57 201.56 18.40 8.45 0.07 29.61
Turkey 2136.85 1240.36 5.33 5408.57 792.69 460.77 1.83 2125.37
UK 3598.10 2799.94 11.99 9505.95 1175.10 1108.43 2.90 3725.28
US 27857.06 22403.67 94.65 71396.02 14616.68 13074.51 40.26 41801.44
A costless increase in GDP is
possible for each country :
31 bn USD for US, 12.5 bn US
D for Japan
CO2 levels can be costlessly
reduced by the same 0.5% on
average
Total amount of costless
reduction of CO2 levels in the
OECD is only 1.5% of the 30%
reduction in Copenhagen
protocol
TWO SCENARIOS OF CO2 REDUCTION
Scenario 1: allocate reduction targets such that:
Total goal of reducing CO2 by is met
No country sacrifices more than of its GDP
Total costs of reduction are minimized
Scenario 2: allocate reduction targets such that
:
Total goal of reducing CO2 by is met
No country is reducing its CO2 levels by more
than a fraction of its current level
1,0
1,0
30..1,
30..1,
..
30
1
30
1
icc
iGDPc
cc
ts
cMin
ii
iii
i
i
i
ii
ic
ic
1,0
ic
30..1,
..
17
1
30
1
icc
cc
ts
cMin
ii
i
i
i
ii
Scenario 1 allocates as much as possible to the most
efficient emission reducersincentive problem
Scenario 2 is more fair compared to Scenario 1, but
implementation costs may be high
ALLOCATING REDUCTION SHARES: SCENARIO 1,
UPPER CAP ON THE GDP OPPORTUNITY COSTS CO2 Reduction, % 30% 35% 40% 45%
Min GDP Reduction, % 1.19% 1.40% 1.62% 1.86%
CO2 Reduction Reduction, kt Contribution, % Reduction, kt Contribution, % Reduction, kt Contribution, % Reduction, kt Contribution, %
Australia 15860 (4%) 0.41% 18658 (5%) 0.42% 21590 (6%) 0.42% 24789 (7%) 0.43%
Austria 1579 (2%) 0.04% 1858 (3%) 0.04% 2150 (3%) 0.04% 2469 (4%) 0.04%
Belgium 6276 (6%) 0.16% 7384 (7%) 0.17% 8544 (8%) 0.17% 9810 (9%) 0.17%
Canada 98801 (19%) 2.58% 116236 (22%) 2.60% 134502 (25%) 2.63% 154428 (29%) 2.69%
Chile 15052 (25%) 0.39% 17708 (29%) 0.40% 20490 (34%) 0.40% 23526 (39%) 0.41%
Denmark 1412 (3%) 0.04% 1661 (3%) 0.04% 1922 (4%) 0.04% 2206 (4%) 0.04%
Finland 4903 (8%) 0.13% 5768 (10%) 0.13% 6674 (11%) 0.13% 7663 (13%) 0.13%
France 300187 (77%) 7.83% 353161 (91%) 7.90% 388751 (100%) 7.60% 388751 (100%) 6.76%
Germany 64727 (8%) 1.69% 76150 (9%) 1.70% 88116 (11%) 1.72% 101170 (12%) 1.76%
Greece 3478 (4%) 0.09% 4092 (4%) 0.09% 4735 (5%) 0.09% 5437 (6%) 0.09%
Hungary 8433 (14%) 0.22% 9921 (17%) 0.22% 11480 (19%) 0.22% 13181 (22%) 0.23%
Iceland 259 (12%) 0.01% 304 (14%) 0.01% 352 (16%) 0.01% 404 (18%) 0.01%
Ireland 916 (2%) 0.02% 1078 (3%) 0.02% 1247 (3%) 0.02% 1432 (3%) 0.02%
Israel 3419 (6%) 0.09% 4022 (7%) 0.09% 4654 (8%) 0.09% 5343 (9%) 0.09%
Italy 12206 (3%) 0.32% 14361 (3%) 0.32% 16617 (4%) 0.33% 19079 (4%) 0.33%
Japan 8502 (1%) 0.22% 21765 (2%) 0.49% 25186 (2%) 0.49% 10093 (1%) 0.18%
Korea 33537 (7%) 0.87% 39456 (9%) 0.88% 45656 (10%) 0.89% 52420 (12%) 0.91%
Luxembourg 0 (0%) 0.00% 137 (1%) 0.00% 158 (2%) 0.00% 0 (0%) 0.00%
Mexico 142918 (34%) 3.73% 168139 (41%) 3.76% 194561 (47%) 3.81% 223385 (54%) 3.88%
Netherlands 12058 (7%) 0.31% 14186 (8%) 0.32% 16415 (9%) 0.32% 18847 (11%) 0.33%
New Zealand 3602 (11%) 0.09% 4237 (13%) 0.09% 4903 (15%) 0.10% 5630 (17%) 0.10%
Norway 1280 (3%) 0.03% 1506 (4%) 0.03% 1743 (4%) 0.03% 2001 (5%) 0.03%
Poland 83091 (25%) 2.17% 97754 (30%) 2.19% 113115 (34%) 2.21% 129873 (39%) 2.26%
Portugal 2503 (4%) 0.07% 2945 (5%) 0.07% 3407 (6%) 0.07% 3912 (6%) 0.07%
Spain 12133 (4%) 0.32% 14274 (5%) 0.32% 16517 (5%) 0.32% 18964 (6%) 0.33%
Sweden 52484 (100%) 1.37% 52484 (100%) 1.17% 52484 (100%) 1.03% 52484 (100%) 0.91%
Switzerland 0 (0%) 0.00% 33 (0%) 0.00% 141 (0%) 0.00% 0 (0%) 0.00%
Turkey 228128 (100%) 5.95% 228128 (100%) 5.10% 228128 (100%) 4.46% 228128 (100%) 3.97%
UK 94844 (17%) 2.47% 111582 (21%) 2.49% 129116 (24%) 2.53% 148244 (27%) 2.58%
US 2621375 (47%) 68.37% 3083971 (55%) 68.95% 3568595 (64%) 69.81% 4097275 (73%) 71.25%
Total cost, bn USD
362.06
455.27
526.16 548.03
Note: ratio of allocated reduction to current CO2 emissions in parentheses
1. Increasing total reduction target increases the upper cap
on GDP opportunity costs
2. The GDP opportunity costs are rather modest at less
than 2% even for a 45% total reduction
3. Individual reduction shares generally increase with
higher total reduction targets
4. 30% reduction achievable at 362 bn USD
5. Reduction burden distributed unequally: US accounting f
or more than 68% of total reduction
6. US, France, Turkey, Mexico, UK have to reduce >86% of t
otal reduction
7. Some countries required to reduce by 100%: Turkey, Swe
den, France: how realistic is this?
ALLOCATING REDUCTION SHARES:
SCENARIO 2, UPPER CAP ON THE INDIVIDUAL REDUCTION, 30% TOTAL GOAL
Max
Individual Reduction 50% 40% 30%
Reduction,
kt
Relative
to current
GDP
opportunity
costs
Reduction,
kt
Relative to
current
GDP
opportunity
costs
Reduction,
kt
Relative to
current
GDP
opportunity
costs
Australia 0 0% 0.00% 0 0% 0.00% 107039 30% 8.03%
Austria 0 0% 0.00% 0 0% 0.00% 20205 30% 15.22%
Belgium 0 0% 0.00% 0 0% 0.00% 33661 30% 6.38%
Canada 265284 50% 3.20% 212227 40% 2.56% 159170 30% 1.92%
Chile 30037 50% 2.37% 24030 40% 1.90% 18022 30% 1.42%
Denmark 0 0% 0.00% 0 0% 0.00% 16061 30% 13.54%
Finland 0 0% 0.00% 24015 40% 5.83% 18011 30% 4.37%
France 194376 50% 0.77% 155500 40% 0.62% 116625 30% 0.46%
Germany 0 0% 0.00% 332119 40% 6.11% 249089 30% 4.58%
Greece 0 0% 0.00% 0 0% 0.00% 28443 30% 9.73%
Hungary 29754 50% 4.20% 23803 40% 3.36% 17852 30% 2.52%
Iceland 0 0% 0.00% 373 17% 1.72% 659 30% 3.03%
Ireland 0 0% 0.00% 0 0% 0.00% 12421 30% 16.13%
Israel 0 0% 0.00% 0 0% 0.00% 17814 30% 6.20%
Italy 0 0% 0.00% 0 0% 0.00% 138984 30% 13.55%
Japan 0 0% 0.00% 0 0% 0.00% 390000 30% 25.09%
Korea 0 0% 0.00% 181509 40% 6.44% 136132 30% 4.83%
Luxembourg 0 0% 0.00% 0 0% 0.00% 2774 30% 28.39%
Mexico 207493 50% 1.73% 165994 40% 1.38% 124496 30% 1.04%
Netherlands 0 0% 0.00% 0 0% 0.00% 52997 30% 5.23%
New Zealand 0 0% 0.00% 13106 40% 4.33% 9829 30% 3.25%
Norway 0 0% 0.00% 0 0% 0.00% 12164 30% 11.31%
Poland 164725 50% 2.36% 131780 40% 1.89% 98835 30% 1.42%
Portugal 0 0% 0.00% 0 0% 0.00% 18443 30% 8.77%
Spain 0 0% 0.00% 0 0% 0.00% 94697 30% 9.29%
Sweden 26242 50% 0.44% 20994 40% 0.35% 15745 30% 0.26%
Switzerland 0 0% 0.00% 0 0% 0.00% 12409 30% 84.47%
Turkey 114064 50% 0.36% 91251 40% 0.28% 68438 30% 0.21%
UK 1990 0% 0.02% 217262 40% 2.73% 162947 30% 2.04%
US 2800000 50% 1.27% 2240000 40% 1.02% 1680000 30.00% 0.76%
Total cost, bn USD 241.36 479.99 2184.49
1. It is cheapest to allocate each country the maximum possible reduction in
case the country is chosen to participate in reduction efforts
2. US, Mexico and Canada bear most of the reduction brunt in case the
individual plank is 50%
3. Fairness comes at a cost of unequal distribution of GDP opportunity costs:
Japan foregoes 25% of its GDP in the plank is 30%, but it does not reduce
anything if individual reductions are capped by 40%
4. Individual reduction costs and GDP opportunity costs differ a lot
depending on the individual cap
5. It is cheapest to reduce CO2 by reducing the individual cap, but then only
a few countries share the burden
6. The 30% uniform reduction is prohibitively expensive at 2.2 trillion USD
CONCLUSIONS
Basic tradeoff between uniformity of individual reductions and GDP opportunity costs
Uniform reductions at 30% “Copenhagen” levels are prohibitively expensive relative to other scenarios
Need additional criteria to choose individual reduction planks or GDP opportunity costs
Additional research needed to explore the dynamic optimality of CO2 reductions