Department of Economics

Compensations and Contributions Under an International Carbon Treaty

Department of Economics
University of Delaware
Working Paper #2008-03

Compensations and Contributions Under an International Carbon Treaty

Kenneth A. Lewis and Laurence S. Seidman

ABSTRACT

The simulations in this paper use actual 2004 data on carbon emissions and per capita GDP from 178 countries to provide a rough estimate of how much better off high-income countries might be by compensating low-income countries to help reduce carbon emissions rather than doing it without their help; and a rough estimate of the per capita compensation to each low-income country and the per capita contribution from each high-income country under several alternative formulas that might be adopted under an international carbon treaty.  The study focuses special attention on the per capita compensations to India, China, and Russia, and the per capita contributions from the United States, Japan, Germany, United Kingdom, Italy, and France, under alternative formulas.  In our initial simulation, if the 46 countries with per capita GDP above $12,000 want to reduce world emissions by 1.095 billion metric tons (15% of world emissions), we calculate that the total cost of their emissions reduction would be $108 billion if they do it without help.  But if they get optimal help from the 132 low-income countries, the total cost of reducing world emissions 1.095 billion would be only $55 billion-- $27 billion for the low-income countries and $28 billion for the high-income countries-- so the world cost saving would be $53 billion and the cost saving for the high-income countries would be $80 billion.  Thus, if the high-income countries compensate the low-income countries 100% of their cost ($27 billion), the high-income countries would still be $53 billion better off than if they had done it alone.  Under the formula used in this initial simulation, China’s per capita compensation would be $7 and the U.S.’s per capita contribution would be $40.

JEL Code: H23

Keyword: International Carbon Treaty

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