Allocation of CO2 emission permits—Economic incentives for emission reductions in developing countries

The economic impacts on developing regions following a global cap and trade system for carbon dioxide are assessed through the use of an energy-economy systems model. Both an equal per capita allocation and a contraction and convergence allocation with convergence of the per capita emissions by 2050 are shown to offer economic incentive for Africa, India and probably also Latin America to accept binding emissions commitments under a 450 ppm carbon dioxide stabilization scenario. The gain for Latin America is mainly a result of increased export revenues from sales of bio-fuels as a result of the climate policy. It is, on the other hand, unlikely that these allocation approaches would offer an economic incentive for China to join the regime because of its high economic growth, present higher per capita emissions than India and Africa, and more costly mitigation options than Latin America. A more stringent allocation for developing countries such as contraction with convergence of the per capita emissions by the end of this century is estimated to generate reduced net gains or increased net losses for the developing regions (though Africa is still expected to gain).