A CO2 AGREEMENT PROPOSAL WITH FLEXIBLE QUOTAS

Significant reductions in global CO2 emissions can hardly be expected without a binding international agreement on reduction rates. Although the Rio summit failed to produce binding reduction targets, efforts t o work out an international abatement schedule need to continue if glo bal CO2 abatement is considered necessary. In this paper a CO2 agreeme nt design is described that attempts to create broad participation by offering less developed countries the opportunity to improve their eco nomic position. A formula for allocating emission quotas is proposed w hich accounts for both long-term equity considerations and intermediat e-term adjustment problems. A penalty/premium mechanism provides the s ystem with flexibility and creates the potential to attain global CO2 abatement at minimum economic losses. Equity and efficiency implicatio ns of the propsals are illustrated by means of a simple simulation mod el.