Climate change control: the Lindahl solution

Abstract

The main purpose of this paper is to evaluate different burden sharing rules with respect to abatement of carbon emissions. We evaluate seven different rules both in terms of their redistributive impact and by the extent to which they realize the aim of optimal abatement. We show that the Lindahl solution, where the burden sharing rule of carbon abatement is determined by each region’s willingness to pay, is to be preferred above the non-cooperative Nash outcome. Poor regions however would prefer the social planner outcome with a global permit market, because then the burden sharing rule has a secondary role of income redistribution by means of transfers from rich to poor, on top of its primary role of assigning abatement burdens. Based on these findings, we argue that in order to control global greenhouse gas emissions, the level of individual country emission abatement effort should be a function of their willingness to pay to curb climate change, rather than their historical emissions or ability to abate.