An Equitable, Efficient and Implementable Scheme to Control Global Carbon Dioxide Emissions

We design an international scheme to control global carbon dioxide emissions in which autonomous developed and developing regions choose their own carbon dioxide emissions in anticipation of interregional resource transfers to be implemented by an international agency. This agency’s objective function obeys a proportional equity principle, which preserves the status-quo relative ranking of regional welfare levels. We show that it is individually rational for each region to participate in our proposed international scheme and that regional environmental authorities choose policies that internalize the global environmental externalities. These results are especially noteworthy in light of the call for international transfers from developed to developing countries in the Kyoto Protocol.