Economic and Environmental Benefits from International Cooperation on Climate Policies

Abstract

analyzes and compares various international mechanisms proposed to enhance global climate action, discussing their emission, economic, burden-sharing, and competitiveness impacts. It assesses five main policy scenarios going up to 2030 in line with the horizon of NDCs. The first policy scenario is an international carbon price floor similar to that proposed by Black and others (2021), in which high-, middle- and low-income countries introduce carbon price floors of $75, $50, and $25, respectively, and countries implement the maximum of their carbon price floor and the carbon price implicit in their Nationally Determined Contribution. The use of price minima allows the arrangement to complement the Paris Agreement—countries can still set higher prices than the floor price if this is needed to help meet their Paris pledge. One difference between this scenario and that in Black and others (2021) is that the carbon price floors are applied worldwide and not just to a subset of large emitters, in the spirit of global minimum carbon prices and to minimize competitiveness concerns. The second scenario calculates the uniform global carbon price which delivers cumulative emissions reductions similar to those of the international carbon price floor arrangement (the carbon price in 2030 is about $56, close to the midpoint of the carbon price floors) and assumes all countries implement this price. The third and fourth scenarios consider the case of fragmented action, in which only high-income countries implement ambitious climate policies, and examine the impacts both without and with border carbon adjustment of various designs. Finally, in a last scenario that assumes that MICs and LICs not to implement an economy-wide international carbon price floor, the paper explores whether they could nevertheless be amenable to an international carbon price floor arrangement limited to energy-intensive and trade-exposed in order to avoid the imposition of border carbon