Stabilization Levels: Cost Estimates by Region

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There are various ways to allocate the costs of stabilizing the climate, either by historical emissions or by efficiency of emissions reductions.  Typically, cost estimates by region first determine how costs are to be allocated before calculating cost estimates under the chosen allocation schedule.  Generally, these two ways of allocating climate stabilization costs are combined in a cap and trade scenario, in which the countries that have historically emitted the most GHGs (and which also tend to be the wealthiest nations) receive the fewest emissions allotments.  Developing countries, which can reduce current and future emissions most efficiently (though at the cost of GDP growth), receive more allotments.  The richer, developed countries purchase the developing countries’ emissions allotments.  The developing countries receive money, but in exchange they must reduce their emissions.  Wealthier, developed countries effectively subsidize the emissions reductions of developing countries.  The climate controls on developing countries tend to have a greater effect on GDP growth (or cost more to implement) than climate controls on developed countries, though some studies dispute this.  An emissions cap trading system has been found to harm developing countries by increasing the cost of exports and reducing the demand for imports (but this study did not have developing countries participating in the emissions reduction policy).  On the other hand, other studies indicate that an emissions cap and trade system would reduce the costs (or potentially provide gains) to developing countries provided that those developing countries participated.  Some studies express concerns that transaction costs might be greater that assumed.

Less than full participation in climate stabilization will likely lead to industrial leakage and raise the costs of climate stabilization for participating countries.  Even if other countries start to participate later on, their delay will lead to increased costs for both early and later participants.  Incentives might be used to induce full cooperation, as full cooperation will likely lead to lowest costs.  Strategic behavior may pose an impediment to obtaining full cooperation at the lowest cost.  Industrial leakage might be reduced by setting standardized global emissions for certain activities in certain sectors that are subject to international competition (e.g., aluminum and steel production).