Coordinated carbon taxes or tightened NDCs: Distributional implications of two options for climate negotiations

Abstract

Concerns about fairness among countries remain significant obstacles to a stronger global climate treaty. This paper addresses the distributional implications of two mechanisms to strengthen the Paris Agreement, the incorporation of national carbon pricing, and the tightening of nationally determined contributions (NDCs). Both are found to be viable mechanisms. They are also less extreme, and therefore more acceptable, than both grandfathering, which favors the most fossil-intensive economies, and equal per capita allocation, which favors low-income countries that use less fossil fuel. However, compensatory funding for developing countries will also be needed at scale. An analysis of the ambitiousness of current climate policies shows a broad range of outcomes: the more ambitious NDCs have emission levels below either the per capita or grandfathering levels, and sometimes both. However, some NDCs, especially those tabled by the largest emitters, are severely lacking in ambition.