DP8685 Climate Policy and Developing Countries

Author(s): Hans Gersbach, Noemi Hummel
Publication Date: December 2011
Keyword(s): climate change mitigation, developing countries, international agreements, refunding scheme
JEL(s): H23, H41, O10, O13, Q54
Programme Areas: Public Economics, Development Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=8685

We suggest a development-compatible refunding system designed to mitigate climate change. Industrial countries pay an initial fee into a global fund. Each country chooses its national carbon tax. Part of the global fund is refunded to developing and industrial countries, in proportion to the relative emission reductions they achieve. Countries receive refunds net of tax revenues. We show that such a scheme can simultaneously achieve efficient emission reductions and equity objectives, as developing countries abate voluntarily, do not have to pay an initial fee, are net receivers of funds, and are net beneficiaries. Moreover, we explore the potential of simple refunding schemes that do not claim tax revenues and only rely on initial fees paid by industrial countries.