Fairness Is Key In Global Carbon Dioxide Emissions Agreement

December 08, 1997

University Park, Pa. -- A global system of tradeable carbon dioxide permits has the potential to galvanize support for a greenhouse gas emissions treaty that can solve the problem at lowest possible cost, and is fair to both industrialized and developing nations, according to a Penn State energy and environmental economist.

Unfortunately, there is no universal consensus on the best definition of fairness, or equity, but the negotiation process can be facilitated if countries understand the full ramifications of various alternatives.

"We have found that the fairness of final economic outcomes does not significantly rely on the fairness of the first principles used to allocate emission permits or set tax differentials," says Dr. Adam Z. Rose, professor and head of the Department of Energy, Environment and Mineral Economics at Penn State.

The issues of greenhouse gas reduction and tradeable carbon dioxide emission permits figure heavily in the Third Conference of the Parties of the Framework Convention on Climate Change currently underway in Kyoto, Japan.

Rose and Brandt Steven of the California Energy Commission applied a non-linear mathematical programming model of greenhouse gas reduction to a representative sample of eight major countries or country groups, using a variety of equity criteria including some that were process-based, allocation-based and outcome-based.

"There are a number of seemingly disparate equity principles that yield similar sets of intercountry welfare outcomes, and, thereby, could reduce tensions at the bargaining table if policy-makers focus on bottom-line economic impacts," the researchers say in the December issue of the International Journal of Environment and Pollution. "However, some seemingly reasonable principles are probably untenable from both a political and fairness standpoint."

The most surprising result was the outcome of a criterion labeled "Egalitarian," based on the idea that all people have an equal right to pollute and to be protected from pollution. This criterion would distribute emission permits in proportion to population.

This method of allocation would require the U.S. to spend $161 billion annually on carbon dioxide abatement. Western Europe and the Commonwealth of Independent States (part of the former Soviet Union) also would incur large costs. The trading of emission permits reduces these costs significantly but requires the U.S. to spend more than $31 billion per year on permits.

"These large negative benefits for industrialized countries, even with trading, implies the Egalitarian rule is likely to be unacceptable to the most powerful treaty signatories," says Rose. "Our empirical analysis has uncovered a likely political infeasibility that is not apparent when this criterion is presented in the abstract."

While an Egalitarian approach would harm industrialized countries, the researchers identify other fair and likely acceptable rules for sharing the cost burden and still ensuring that an agreement to limit emissions is cost effective.

The developing countries must assure that their interests do not become subservient to global efficiency alone. Because there is no efficiency-equity tradeoff under a tradeable permit system, all countries can address equity issue head on. At the same time, developing countries must be willing to participate in marketable permits and global trading. They must also ensure that the allocation and distribution of any carbon tax be equitable.

Decisions must be based on formal equity criteria rather than general rules of thumb that may not lead to intended outcomes, and developing countries must aim for equitable outcomes rather than merely equitable permit allocations. To this end, the fairness of procedural matters, while important, should not take precedence over a fair outcome.

Developing countries must also consider the cost of mitigation in terms of future economic growth and, at the same time, keep the cost of mitigation in their countries from rising over time.

Perhaps the most important aspect for developing countries is that they must participate in the global warming agreement. If they do not, other countries might delay and not act in time to prevent sizable damages from taking place.

"It is possible to conceive of agreements that are fair to developing countries, in terms of low mitigation costs or high transfers, and also helpful to industrialized countries in terms of saving high mitigation costs," says Rose. "We emphasize the usefulness of being able to gauge the end result of various negotiating principles, so that countries can see the full ramifications of their positions.

EDITOR: Dr. Rose may be reached at (814) 863-0179 or azr1@psu.edu by email.

Penn State

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