The G8 countries propose a goal of a 50% reduction in global emissions by 2050, in an effort that needs to take account of other agreements specifying that developing countries are to be provided with incentives to action and protected from the impact of measures taken by others. To help inform international negotiations of measures to achieve these goals we develop a technique for endogenously estimating the allowance allocations and associated financial transfers necessary to achieve predetermined distributional outcomes and apply it in the MIT Emissions Prediction and Policy Analysis (EPPA) model. Possible burden sharing agreements are represented by different allowance allocations (and resulting financial flows) in a global cap-and-trade system. Cases studied include agreements that allocate the burden based on simple allocation rules found in current national proposals and alternatives that specify national equity goals for both developing and developed countries. The analysis shows the ambitious nature of this reduction goal: universal participation will be necessary and the welfare costs can be both substantial and wildly different across regions depending on the allocation method chosen. The choice of allocation rule is shown to affect the magnitude of the task and required emissions price because of income effects. If developing countries are fully compensated for the costs of mitigation then the welfare costs to developed countries, if shared equally, are around 2% in 2020, rising to some 10% in 2050, and the implied financial transfers are large—over $400 billion per year in 2020 and rising to around $3 trillion in 2050. For success in dealing with the climate threat any negotiation of long-term goals and paths to achievement need to be grounded in a full understanding of the substantial amounts at stake.

About the book: The Harvard Project on International Climate Agreements seeks to identify key design elements of a scientifically sound, economically rational, and politically pragmatic post-2012 international policy architecture for global climate change. It draws upon leading thinkers from academia, private industry, government, and non-governmental organizations from around the world to construct a small set of promising policy frameworks and then disseminate and discuss the design elements and frameworks with decision-makers. For more information, see: http://belfercenter.ksg.harvard.edu/climate

© 2009 Cambridge University Press

The United States has adopted fuel economy standards that require increases the on-road efficiency of new passenger vehicles, with the goal of reducing petroleum use, as well as (more recently) greenhouse gas (GHG) emissions. Understanding the cost and effectiveness of this policy, alone and in combination with economy-wide policies that constrain GHG emissions, is essential to inform coordinated design of future climate and energy policy. In this work we use a computable general equilibrium model, the MIT Emissions Prediction and Policy Analysis (EPPA) model, to investigate the effect of combining a fuel economy standard with an economy-wide GHG emissions constraint in the United States. First, a fuel economy standard is shown to be at least five to fourteen times less cost effective than a price instrument (fuel tax) when targeting an identical reduction in cumulative gasoline use. The GHG emissions reduction under a fuel economy standard alone is also shown to be proportionally less than the reduction in gasoline use, in part because GHG emissions from electricity production used in grid-connected electric vehicles are excluded from the regulation. Second, when combined with a cap-and-trade (CAT) policy, the fuel economy standard increases the cost of meeting the GHG emissions constraint by forcing expensive reductions in passenger vehicle gasoline use, replacing other more cost-effective abatement opportunities. Third, the impact of adding a fuel economy standard depends on the availability and cost of abatement opportunities in transport—if advanced biofuels provide a cost-competitive alternative to gasoline, the fuel economy standard does not bind and passenger vehicles provide a significantly larger contribution to GHG emissions abatement.

Urbanization and economic development have important implications for many environmental processes including global climate change. Although there is evidence that urbanization depends endogenously on economic variables, long-term forecasts of the spatial distribution of population are often made exogenously and independent of economic conditions. It is common for research concerning long-run projections of global environmental change to use population density as the primary means to spatially distribute emissions projections. However, researchers typically utilize year 1990 cross-sectional population data to distribute their emissions projections for both the short- and long-term, without projecting any changes in population density. Thus, a beta distribution for individual countries/regions is estimated to describe the geographical distribution of population using a one-degree-by-one-degree latitude–longitude global population data set. Cross-sectional country/regional data are then used to estimate an empirical relationship between parameters of the beta distribution and macroeconomic variables as they vary among countries/regions. This conditional beta distribution allows the simulation of a changing distribution of population, including the growth of urban areas, driven by economic forecasts until the year 2100.

© Springer Netherlands 2007

Dr. Denny Ellerman of the MIT Global Change Program testifies on the allocation of tradable permits, or allowances.

(Hearing Schedule)