Article | Published:

Transfer payments in global climate policy

Nature Climate Change volume 2, pages 628633 (2012) | Download Citation

Abstract

Many scientists and policymakers agree that large financial flows from richer to poorer countries will be necessary to reach an agreement on reducing greenhouse-gas emissions enough to keep global warming below 2 °C. But the required amounts of transfer payments and justifications for them remain contested. We contribute to this debate by developing an argument for transfer payments that derives from the differences between carbon prices that different countries may set in light of two distinct criteria for appropriate levels of emission reductions. If, for reasons of cost efficiency, a globally uniform carbon price was installed, transfer payments would be required to offset these differences. We combine global climate modelling with regional welfare analysis to estimate regional carbon prices under various climate change, emissions and economic scenarios. The estimated ratios between regional carbon prices are surprisingly robust to different modelling assumptions. To the extent that burden-sharing choices in global climate policy are motivated by regional carbon prices, our analysis allows for a quantification of required transfer payments. Assuming a global carbon price of US$35 per t CO2, for example, our estimates would justify transfer payments of the order of US$15–48 billion per year.

Access optionsAccess options

Rent or Buy article

Get time limited or full article access on ReadCube.

from$8.99

All prices are NET prices.

References

  1. 1.

    et al. Copenhagen accord pledges are paltry. Nature 464, 1126–1128 (2010).

  2. 2.

    & China’s environment in a globalizing world. Nature 435, 1179–1186 (2005).

  3. 3.

    , , & China, the United States, and the Climate Change Challenge WRI Policy Brief (World ResourceInstitute, 2009).

  4. 4.

    et al. Sharing the burden of financing adaptation to climate change. Glob. Environ. Change 19, 411–421 (2009).

  5. 5.

    , & The Bali roadmap: New horizons for global climate policy. Clim. Policy 8, 91–95 (2008).

  6. 6.

    Restoring confidence at the Cancun climate change conference. Greenhouse Gases: Sci. Technol. 1, 8–10 (2011).

  7. 7.

    & On international equity weights and national decision making on climate change. J. Environ. Econ. Manag. 60, 14–20 (2010).

  8. 8.

    How inequitable is the global distribution of responsibility, capability, and vulnerability to climate change: A comprehensive indicator-based assessment. Glob. Environ. Change 20, 597–611 (2010).

  9. 9.

    & State responsibility and compensation for climate change damages—a legal and economic assessment. Energ. Policy 32, 1109–1130 (2004).

  10. 10.

    et al. Analysing countries’ contribution to climate change: Scientific and policy-related choices. Environ. Sci. Policy 8, 614–636 (2005).

  11. 11.

    & Comparison of formalisms for attributing responsibility for climate change: Non-linearities in the Brazilian proposal approach. Climatic Change 68, 67–99 (2005).

  12. 12.

    To tax or not to tax: Alternative approaches to slowing global warming. Rev. Environ. Econ. Policy 1, 26–44 (2007).

  13. 13.

    Environment and Statecraft: The Strategy of Environmental Treaty-Making (Oxford Univ. Press, 2006).

  14. 14.

    Nakicenovic, N. & Swart, R. (eds) IPCC Special Report on Emissions Scenarios (Cambridge Univ. Press, 2000).

  15. 15.

    et al. in IPCC Climate Change 2007: Impacts, Adaptation and Vulnerability (eds Parry, M. L., Canziani, O. F., Palutikof, J. P., van der Linden, P. J. & Hanson, C. E.) 811–841 (Cambridge Univ. Press, 2007).

  16. 16.

    Discounting climate change. J. Risk Uncertainty 37, 141–169 (2008).

  17. 17.

    Committee on Climate Change Meeting Carbon Budgets—The Need for a Step Change Progress Report to Parliament (2009).

  18. 18.

    Growth in open economies. Carnegie–Rochester Conf. Ser. Public Policy 36, 5–46 (1992).

  19. 19.

    , & Saving behavior in low- and middle-income developing countries: A comparison. Int. Monet. Fund S. Pap. 43, 38–71 (1996).

  20. 20.

    The Economics of Global Warming (Peterson Institute, 1992).

  21. 21.

    Managing the Global Commons: The Economics of Climate Change (MIT Press, 1994).

  22. 22.

    The Economics of Climate Change: The Stern Review (Cambridge Univ. Press, 2007).

  23. 23.

    & Social discount rates for six major countries. Appl. Econ. Lett. 11, 557–560 (2004).

  24. 24.

    Reconciling conflicting evidence on the elasticity of intertemporal substitution: A macroeconomic perspective. J. Monetary Econ. 53, 1451–1472 (2006).

  25. 25.

    A Question of Balance: Weighing the Options on Global Warming Policies (Yale Univ. Press, 2008).

  26. 26.

    , & Correcting the carbon cycle representation: How important is it for the economics of climate change? Environ. Model. Assess. 4, 133–140 (1999).

  27. 27.

    et al. Global warming feedbacks on terrestrial carbon uptake under the Intergovernmental Panel on Climate Change (IPCC) emission scenarios. Glob. Biogeochem. Cycles 15, 891–908 (2001).

  28. 28.

    & The equilibrium sensitivity of the Earth’s temperature to radiation changes. Nature Geosci. 1, 735–743 (2008).

  29. 29.

    et al. Aggregated Carbon Cycle, Atmospheric Chemistry, and Climate Model (ACC2)—Description of the Forward and Inverse Modes Tech. Rep. 40 (Max Planck Institute for Meteorology, 2007).

  30. 30.

    Modeling impacts and adaptation in global IAMs. WIREs Clim. Change 1, 288–303 (2010).

  31. 31.

    & Energy and Environment175–189 (Springer, 2005).

  32. 32.

    & Magnitude and direction of technological transfers for mitigating GHG emissions. Energ. Econ. 28, 730–741 (2006).

  33. 33.

    , , , & A world induced technical change hybrid model. Energy J. 27, 13–37 (2006).

  34. 34.

    , & The efficiency costs of separating carbon markets under the EU emissions trading scheme: A quantitative assessment for Germany. Energ. Econ. 28, 44–61 (2006).

  35. 35.

    & Global Trade, Assistance, and Production: The GTAP 7 Data Base (Center for Global Trade Analysis, Purdue Univ., 2008).

Download references

Acknowledgements

We are grateful to C. Böhringer, F. Joos, and T. Rutherford for comments and support. C. Böhringer kindly provided us with estimates of marginal abatement-cost curves and F. Joos supplied us with a version of the BERNCC climate model and instructed us on how to run it.

Author information

Affiliations

  1. ETH Zürich, Centre for Energy Policy and Economics (CEPE), ZUE E1, Zürichbergstrasse 18, CH-8032, Zürich

    • Florian Landis
  2. ETH Zürich, Center for Comparative and International Studies (CIS) and Institute for Environmental Decisions (IED), IFW C45.1, Haldeneggsteig 4, CH-8092, Zürich

    • Thomas Bernauer

Authors

  1. Search for Florian Landis in:

  2. Search for Thomas Bernauer in:

Contributions

F.L. carried out the climate modelling and economic computations. T.B. and F.L. developed the research idea and main concepts and jointly wrote the paper.

Competing interests

The authors declare no competing financial interests.

Corresponding author

Correspondence to Florian Landis.

Supplementary information

About this article

Publication history

Received

Accepted

Published

DOI

https://doi.org/10.1038/nclimate1548

Further reading