Oldenburg Discussion Papers in Economics

Transcription

1 Olnbug Dscusson Pas n Economcs Otmal Emsson Pcng n th Psnc of Intnatonal Sllovs: Dcomosng Laag an Tms-of-Ta Motvs Chstoh Böhng, Anas Lang, Thomas F. Ruthfo V-347- Jun 0 Datmnt of Economcs Unvst of Olnbug, D-6 Olnbug

2 Otmal Emsson Pcng n th Psnc of Intnatonal Sllovs: Dcomosng Laag an Tms-of-Ta Motvs Chstoh Böhng a, Anas Lang b, an Thomas F. Ruthfo c Abstact Cabon laag ovs an ffcnc agumnt fo unlatal clmat olc to ffntat msson cs n favo of msson-ntnsv an ta-xos sctos. At th sam tm, ffntal msson cng can b (ms-)us as a bgga-th-nghbo olc to xlot tms of ta. Usng an otmal tax famwo, w oos a mtho to comos th laag motv an th tms-of-ta motv fo msson c ffntaton. W mlo ou mtho fo a quanttatv mact assssmnt of unlatal clmat olc bas on mcal ata. W fn that th laag motv ls onl small ffcnc gans coma to unfom msson cng. Lws, th tms-of-ta motv has ath lmt otntal fo statgc bun shftng. W conclu that th sml fst-bst ul of unfom msson cng mans a actcal guln fo unlatal clmat olc sgn. K wos: otmal taxaton, msson laag, tms of ta JEL classfcatons: H, Q43, R3, D58 a Unvst of Olnbug, Datmnt of Economcs, Gman b Unvst of Hambug, Datmnt of Economcs, Gman c ETH Züch, CEPE, Swtzlan

3 Intoucton Non-ffntal cng of unfoml ss ollutants acoss all soucs consttuts a fst-bst statg to mt som msson ucton tagt mlmnt va hamonz msson taxs o lws a sstm of taabl msson quotas: th magnal cost (c) to ach us of a gvn ollutant shoul b th sam so that th conom as a whol wll mlo th chast abatmnt otons. Howv, ncomlt gulato covag of msson soucs ovs an ffcnc atonal fo msson c ffntaton. Whn unlatal msson gulaton ams at combatng ntnatonal xtnalts, such as global wamng, low msson cs fo msson-ntnsv an ta-xos nusts can uc msson ncass b ungulat tang atns a hnomnon f to as msson laag (Hol 99, Fl an Ruthfo 993). Th a two basc channls though whch msson laag ma occu. Fst, laag can as whn msson-ntnsv an taxos nusts n counts wth msson constants los comttvnss, thb shftng msson-ntnsv oucton to unconstan gons. Scon, msson gulaton n on conoms ma ss ntnatonal cs fo fossl fuls whch nucs a gowth n ng man of ungulat gons. Hol (996) monstats that ffntat msson cs ma b sabl fo a unlatal abatng count n o to countact msson laag. Whl a count cannot mos a unfom msson c on oth counts an thb achv th fst-bst outcom, t can nflunc fogn oucton an consumton b changng wol cs. Th logcal mlcaton s that unlatal msson gulaton shoul account fo ntnatonal sllovs. In hs analss of otmal unlatal msson cng, Hol gnalzs th smnal wo b Mausn (975) who shows n a two-scto, two-gon mol that th otmal tax stuctu fo a unlatall gulatng count n th cas of an ntnatonal xtnalt conssts of a olluton tax an a taff. Th ntutv sult s that th otmal taff cosons to th otmal (Pgouvan) omstc olluton tax scount b th g to whch man fo th t goo outs th gulatng gon s stmulat b th taff-nuc ucton n th wol mat c of that goo. Futhmo, Mausn onts out that th otmal olluton tax wll ff fom th Pgouvan tax n cas taffs a not a vabl olc nstumnt. Hol ovs a mo gnal thotcal mol to confm that a unfom cabon tax on all omstc consums an oucs shoul b comlmnt wth taffs on th ta goos (.., as a tax on nt mots o a subs on nt xots) n o to countact laag. H shows that th ffntaton of msson taxs acoss sctos bcoms otmal as th unlatall abatng count s vnt fom usng taffs on ta goos. In vw of mssng o ncomlt ntnatonal clmat agmnts as wll as th lgal an oltcal tfalls of cabon taffs, ffntal msson cng s an motant ssu n th sgn of unlatal clmat olcs. As a matt of fact, cunt gulato actc n th EU bols own to ffntal

4 msson cng btwn msson-ntnsv nusts facng a unfom cabon valu though th EU msson tang sstm an th manng sgmnts of th EU conom that a subct to comlmnta natonal gulatons (Böhng t al. 009). Whl ffntal msson cng ma b ustf as a scon-bst statg to uc laag an mov global cost-ffctvnss of unlatal clmat olcs, th funamntal oblm s that statgc c ffntaton can b (ms-)us at th sam tm to xlot tms of ta. Lag on conoms ma b tmt to ffntat msson cs as a substtut fo otmal taffs shftng th omstc msson abatmnt bun as much as ossbl to ungulat tang atns. Th tms-of-ta motv nucs counts to ncas omstc msson taxs on t commots whch a xot an low taxs on t commots whch a mot (Kutlla 99, Anson 99). Th challng fo an nfom olc bat on msson c ffntaton s that th laag an tms-of-ta motvs a nhntl nttwn. It s not obvous to what xtnt msson c ffntaton can b ustf on global ffcnc gouns (to combat laag) o shoul b sgus as unu statgc xlotaton of ntnatonal mat ow (to manulat tms of ta). Lws, a omstc gulato ma want to sot out th u laag motv fo ffntal msson cng n ngotatons wth sntatvs of nfluntal msson-ntnsv nusts that lobb fo fntal tatmnt at th xns of oth sctos n th conom. In ths a w snt an analtcal otmal tax famwo that comoss th laag an tms-of-ta motvs fo ffntal msson cng. W thn ncooat th comoston mtho n a comutabl gnal qulbum mol to nvstgat th latv motanc of th laag an th tms-of-ta motv fo th cton an magntu of msson c ffntaton bas on mcal ata. Futhmo, th numcal analss allows us to assss th magntu of global cost savngs as wll as th sco fo bun shftng though ffntal msson cng coma to non-statgc unfom msson cng. Ou quanttatv sults suggst that both motvs fo ffntal msson cng th laag motv as wll as th tms-of-ta motv a ll to b ovstat n th bat on fntal tatmnt of msson-ntnsv an ta-xos nusts. Whl laag concns ma ustf stnct msson c uctons fo ths sctos, th macts on laag an on th ovall conomc cost of msson abatmnt a small. Lws, th otntal fo xlotng tms of ta though ffntal cng of msson-ntnsv an ta-xos commots an th st of th conom s lmt; lag on conoms such as th EU o th U.S. cannot substantall uc th abatmnt cost b usng sohstcat tax ffntaton. A sml fst-bst ul of unfom msson cng foms onl slghtl wos n tms of conomc ffcnc n a scon-bst sttng wth ntnatonal sllovs. W conclu that unfom msson cng mans a actcal guln fo unlatal clmat olc sgn. 3

5 Ou olc concluson can b tac bac to th lmt lvanc of ta n msson-ntnsv commots fo achvng global msson ucton though ffntal unlatal msson cng. Emsson laag an tms-of-ta ffcts a to a lag xtnt vn b changs n ntnatonal fossl ful cs whch n tun hng mal on uctons n global fossl ful man. In ou costffctvnss analss of unlatal clmat olc w th tagt global msson ucton constant: as th global msson cutbac s ctl ln to th ucton of global fossl ful man, th ntnatonal ng mat sonss a fal obust to altnatv unlatal msson cng statgs. Ta n msson-ntnsv goos whch can b nflunc though ffntal msson cng las an nfo ol fo laag an tms-of-ta changs. Laag concns waant c scmnaton n favo of msson-ntnsv an ta-xos commots but th otntal fo global cost savngs s small snc ths goos onl account fo a small sha n global ta (mssons) an ffntal msson cng bas ct ootunt cost (as omstc magnal abatmnt cost a no long qualz). Fo th sam asons, th sco fo bun shftng un th tms-of-ta motv s lmt. Th man of ths a s oganz as follows. Scton snts th basc thotcal famwo unlng ou comoston of th laag an th tms-of-ta motvs fo msson c ffntaton. Scton 3 ntals a non-tchncal summa of th comutabl gnal qulbum mol an scusss ou numcal fnngs. Scton 4 conclus.. Thotcal Bacgoun Laag an tms-of-ta ffcts ov thotcal agumnts fo msson c ffntaton acoss omstc sctos of a unlatall gulatng count. Both ffcts a nttwn. Emsson constants n an on conom not onl caus austmnts of omstc oucton an consumton attns but nflunc ntnatonal cs,.., th tms of ta, va changs n ta flows. Smultanousl, laag occus wth changs n latv cs as msson uctons n th gulatng count a atall offst though th ncas of msson-ntnsv oucton an hgh ng mans n ungulat counts. A goous assssmnt of th latv motanc of th laag an th tms-of-ta motvs fo ffntal msson cng qus a comoston of ths ntnatonal sllov ffcts. Ou comoston mtho s bas on th a that th unlatal abatng count must comnsat oth counts fo nuc tms-of-ta losss an thus has no long an ncntv fo statgc tms-of-ta manulaton. In ths scton w snt an analtcal famwo to llustat ou comoston tchnqu whch wll b us lat n th mcal gnal qulbum analss. W stat wth a stlz two-gon, mult-commot conom wh w fst v a Pato-otmal allocaton to satsf a tansbouna msson constant. W show that an unlatal msson tax (c) b on count cannot achv ffcnc as long as tansbouna olluton s tan nto account. Nxt, w v th 4

6 fst-o contons fo otmal unlatal msson olcs fom th sctv of a lag on conom wh th omstc gulato mght want to vat fom unfom msson cng fo two asons: th tms-of-ta motv an th laag motv. W thn show that w can suss th tms-of-ta motv b manng that th unlatall taxng gon must th oth gon at th ntal wlfa lvl though comnsatng tansfs. Whl th gnal fnng on ffntal msson cng s n ln wth Hol s smnal contbuton (Hol 996), ou analtcal sttng allows fo an nnovatv an olc-lvant comoston of th tms-of-ta an laag motvs.. Th Basc Mol W cons a sml two counts mol (gons =, ) n whch consumton goos,..., n a ouc wth catal catal an ng (mssons). Poucton n scto,..., n oucton functons (. Eng s ouc n th counts wth ) an th ng scto ( ) a chaactz b f (, ) f ( ). W assum that catal n. n ach gon s mmobl acoss omstc bos such that Eng as wll as th ouc consumton goos can b ta ntnatonall. Total ng us n th sctv counts s not b n such that mat claanc qus. W assum a sntatv consum n count who vs utlt u fom consumng goos, c (,..., n ). Th sntatv consum cvs all ncom. Eng an U ( c ) consumton goos a ta at wol mat cs wol mat,..,. an. W us ng as a numa on th Fnall, mat claanc fo consumton goos qus c an th balanc of amnts (cunt accounts) s waant though 5 c

7 0 ( c ) ( ) T wh T a otntal tansfs a to th oth count ( T T 0). W assum that th hom count ( = ) wants to uc som nvonmntal amags fom ng us. W hb allow fo tansbouna olluton. In ths sttng, count ams at stctng ng us such that E, wh 0 ( allows fo a ffnt wghtng of hom an fogn mssons: n th cas of gnhous gas mssons s ; wthout ntnatonal olluton xtnalts s 0).. Th Pato Otmum A Pato otmal allocaton must guaant E. Th allocaton maxmzs th Lagangan U ( c ) U ( c ) ( E ) f (, ) f (, ) c c ] [ f ( ) f ( ) ] whch las to th followng fst-o contons: [ ] [ ] U U () f () f f f (3) Th nttaton s staghtfowa: th magnal ats of substtuton hav to b ntcal acoss counts / an also b qual to th magnal at of tansfomaton fom allocatng catal an ng acoss th sctv sctos..3 Th Dcntalz Equlbum Poucs n th sctv counts can sll th oucts on th omstc o ntnatonal mat wh outut cs n both mats a assum to b gvn b ( =,..., n) an, sctvl. Catal cs a not b (,, n, ) an ng cs n scto,, n b. Poucton csons a thn chaactz b th fst-o contons f f f (4) 6

8 Th consums, facng consumton cs an ncom I, maxmz utlt b choosng c consumton accong to U / U / c c cc whl th counts must satsf th balanc of amnts: c I ( n I (5) ) T A sml comason of ths qulbum contons wth thos fo Pato otmalt shows that an Pato otmum (wth th nomalzaton η = ) can b cntalz b choosng: combn wth aoat tansfs c (6) (7) T to satsf th balanc of amnts (s quaton (6)). Not that n an Pato otmum, th cs fo ng nuts a not ffntat acoss sctos wthn ach count, whl th mght ff acoss counts f. Eng cs thb flct th oucton cost as wll as th xtnal ffcts of mssons on count. In atcula, ths mls that an unlatal msson tax b count cannot achv ffcnc f α > 0,.., n cas of tansbouna olluton..4 Unlatal Tax Polc of a Lag On Econom Fo th cas of unlatal acton, w stu how count shoul st msson taxs to unlatall maxmz ts wlfa. W not th tax ats n th sctv sctos b (,, n). W thb assum that count has no mssons olc an no stotng taxs,..,, an c. Futhmo, snc w want to focus on asons fo ffntatng ng/msson taxs, w assum that count os not cons an taxaton of o subss on consumton o catal us. That s,,. c It s cla that whn th choc of nfluncs wol mat cs fo consumton goos, also oucton csons an thfo msson lvls aboa chang. Th chang n th tms of ta s thfo ln wth a otntal laag ffct. Fo an gvn st of tax ats fo th sctv sctos, ( ), th contons (4)-(6) togth wth an oucton lvls as wll as cs. fn th qulbum consumton Count maxmzs U ( c ) wth sct to (,, n) such that E. Dffntatng wth sct to ls Wthout loss of gnalt w suss ths nnc of ths qulbum valus on th tax ats n ou notaton. 7

9 c U ( ) 0 c (8) As (5) mls that conton (wth ) U c c fo an aoatl chosn > 0, w obtan th quvalnt c ( ) 0 (9) To analz th otmal unlatal choc of msson taxs b count, w must totall ffntat th qulbum contons. Dffntatng (6) an usng (4), w obtan (s Anx A): c c ( c ) (0) such that th fst o conton (9) s gvn b ] ( ) 0 c () [ fo all. It bcoms obvous that ng tax ffntaton ma b otmal fo count fo two asons: () th tms-of-ta ffct ( / ) an () th laag ffct ( / ). If both ffcts w absnt, fo all woul solv (). In gnal, howv, count shoul ffntat taxs acoss sctos n o to xlot tms of ta an countact msson laag. Fst, cons th tms-of-ta motv fo tax ffntaton: f count w an xot of goo ( c ), t woul l to ncas thos tax ats whch la to an ncas n an cas th oth tax ats. Th oost hols tu f count mots goo. Scon, cons th laag motv fo tax ffntaton: unlatal msson taxs n count uc omstc ng man whl ncasng ng man aboa though low ng cs an hgh cs fo msson-ntnsv goos. Th magnal ffcts of sctoal tax ats on laag ff such that th accountng fo laag n th olc choc also gnall las to ffntat taxs. Count woul l to cas msson taxs on msson-ntnsv ta goos to uc countouctv laag sllovs to count..5 Dcomoston In ths cas w gt th stana sult fo a small on conom that can nth affct tms of ta no cas fo laag. 8

10 In o to assss th latv motanc of th tms-of-ta an laag motvs fo ffntal msson cng, w can suss th tms-of-ta motv followng an ntutv a of coss- count comnsaton: count otmzs ts taxaton olc ( ) combn wth nognous tansfs T ( ) that hol th wlfa n th oth ungulat count fx at th -olc lvl (not u ). Th tax sstm thb agan full chaactzs th sultng qulbum. Wth ths comnsaton qumnt, an magnal chang of th taxaton sstm s accoman b a chang n tansfs such that th sultng magnal consumton chang n count satsfsu c / 0, o quvalntl c / 0. Fo count, th mat claanc conton thfo mls ( / / c / ) 0 () Count s fst-o contons fo wlfa maxmzaton wth sct to th msson tax sstm thfo agan satsf c / [ / / ] 0 fo all. Usng (), ths s quvalnt to as shown n Anx A. 0 ( ) (3) As w mos comnsatng tansfs, th onl manng ason fo ffntatng taxs s laag. 3 In ths cas, w can assgn th xtnt of tax ffntaton full to th laag motv. That s, th tms-of-ta motv s swtch off. In tun, w can cons th xtnt to whch th tmsof-ta motv las to ffntat taxs b swtchng off th laag motv. Fo ths, w solv th fst-o contons () wth α = 0 (.., count os not cons th magnal ffcts of ts olc choc on fogn mssons). It s thn obvous that th tms-of-ta motv mans th onl ason fo tax ffntaton. It shoul b not that ou asonng s ntcal whn w swtch fom msson taxs as olc nstumnt to attonng som tagt msson bugt acoss sctos wthout th ossblt of coss-scto msson tang. 3. Numcal Analss Th analtcal vaton of otmal msson cs bcoms ntactabl fo qulbum contons c 3 As anoth wa to s ths, w can cons conton (7). If α = 0, count coul achv an Pato otmum b unlatall sttng an msson tax,.., a tax on ng us, at an choosng aoat tansfs. It s thfo obvous that th ogam max u such that u u must la to a Pato-ffcnt soluton. In ths cas, howv, w now that msson cs,.., msson taxs, must conc fo all sctos n count. 9

11 that xc th comlxt of txtboo mols (Mausn 975, Hol 996). Futhmo, th sults obtan though magnal analss can n gnal not b tansf to stuctual shocs. Thus, w must us a comutabl gnal qulbum (CGE) aoach bas on mcal ata to quantf how ntnatonal sllovs affct th magntu an cton of msson c ffntaton an how th cost mlcatons ff fom th cas of (non-statgc) unfom msson cng. Ou comoston tchnqu thb allows us to asctan th latv motanc of th tms-of-ta an laag motvs. Th numcal analss s cast as a olc otmzaton oblm subct to conomc qulbum contons: wh: z max U s. t. F( z, ) 0 n s th vcto of nognous cs an quantts tmn b th gnal m qulbum contons, s a vcto of taxs o lws msson cs whch a th choc vaabls fo th otmzaton oblm (n ou cas comss th st of two taxs that n n F: U can b ffntat btwn th msson-ntnsv an ta-xos sctos an th manng sctos of th conom), 4 s a sstm of quatons whch snts th gnal qulbum contons, an s th olc obctv functon. Th obctv functon U flcts wlfa maxmzaton b gon subct to a unlatal msson constant blow busnss-as-usual mssons 0. If th unlatall abatng gon xlctl cas fo global nvonmntal ffctvnss an thus accounts fo laag, th omstc msson constant s lac wth a laag-aust global msson constant. Th latt qus that nognous mssons acoss all gons qual th sum of th tagt unlatal msson lvl gons ( ' ) an th busnss-as-usual mssons of ungulat ' 0 wh th ual vaabl assocat wth th global msson constant nognousl scals th omstc msson tagt of th unlatall abatng gon to offst laag. 4 W mos a non-ngatvt constant on msson cs to xclu th ossblt of msson subss. 0 ' ' 0

12 In o to suss th tms-of-ta motv w n to a a tansf constant fo ach ungulat gon ' that s ths gon at ts ntal wlfa lvl ' ' U U 0 wh th sctv ual vaabl nots th lum-sum tansf btwn th gulat gon an th ungulat gon '. Followng ou thotcal xoston, th gulat count thn has no ncntv fo statgc tms-of-ta manulaton. Th manng qulbum contons n ou numcal analss a ov b a stana global mult-gon, mult-scto CGE mol (Böhng an Ruthfo 00) of global ta an ng us whch al ncooats tms-of-ta an laag sllov ffcts. In ths scton, w fst ov a bf non-tchncal summa of th CGE mol. 5 W thn scb altnatv unlatal clmat olc scnaos to cub global cabon mssons an ntt th smulaton sults. Fnall, w ov snstvt analss on th obustnss of ou fnngs. 3. Comutabl Gnal Equlbum Mol Ou statc CGE mol fatus a sntatv agnt n ach gon that cvs ncom fom th ma factos: labo, catal, an fossl-ful soucs. Labo an catal a ntsctoall mobl wthn a gon but mmobl btwn gons. Fossl-ful soucs a scfc to fossl ful oucton sctos n ach gon. Poucton of commots, oth than ma fossl fuls s catu b nst constant lastct of substtuton (CES) cost functons scbng th c-nnt us of catal, labo, ng, an matal. At th to lvl, a CES comost of ntmat matal mans tas off wth an agggat of ng, catal, an labo subct to a constant lastct of substtuton. At th scon lvl, a CES functon scbs th substtuton ossblts btwn th ng agggat an a valu-a comost of labo an catal. At th th lvl, catal an labo substtuton ossblts wthn th valu-a comost a catu b a CES functon. Th ng agggat s futh slt nto a fossl ful comost an lctct subct to a constant lastct of substtuton. In th oucton of fossl fuls, all nuts, xct fo th scto-scfc fossl ful souc, a agggat n fx ootons at th low nst. At th to lvl, ths agggat tas off wth th scto-scfc fossl ful souc at a constant lastct of substtuton. Fnal consumton man n ach gon s tmn b th sntatv agnt who maxmzs utlt subct to a bugt constant wth fx nvstmnt (.., a gvn man fo savngs) an xognous govnmnt ovson of ublc goos an svcs. Total ncom of th sntatv houshol conssts of facto ncom an taxs. Consumton man of th 5 Anx B nclus a tal algbac mol scton wth a gahcal xoston of th nstng stuctu fo flxbl functonal foms that catu oucton ossblts an consumton fncs.

13 sntatv agnt s gvn as a CES comost that combns consumton of ng an nonng goos. Blatal ta s scf followng th Amngton aoach of ouct htognt wh omstc an fogn goos a stngush b ogn (Amngton 969). All goos us on th omstc mat n ntmat an fnal man coson to a CES comost that combns th omstcall ouc goo an th mot goo fom oth gons. 6 constant catus th bas-a ta fct o sulus fo ach gon. A balanc of amnt Anthoognc cabon mssons as th man vng foc fo clmat chang a ln n fx ootons to th us of fossl fuls, wth cabon coffcnts ffntat b th scfc cabon contnt of fuls. Rstctons to th us of cabon mssons n oucton an consumton a mlmnt though xognous msson constants o quvalntl cabon taxs. Cabon msson abatmnt tas lac b ful swtchng (ntful substtuton) o ng savngs (th b ful-nonful substtuton o b a scal ucton of oucton an fnal man actvts). Rvnus fom cabon cng a ccl lum-sum to th sntatv agnt n th gulatng gon. Th mol buls on th most cnt GTAP7 atabas wth tal accounts of gonal oucton, gonal consumton, blatal ta flows as wll as ng flows an cabon mssons fo th a 004 (Ba an Walmsl 008). Th GTAP atabas s agggat towas a comost st of sctos an gons to accommoat th olc-lvant assssmnt of unlatal msson cng statgs. Th ng goos ntf n th mol a coal, cu ol, natual gas, fn ol oucts, an lctct whch allows us to stngush ng goos b cabon ntnst an to catu c-sonsv fossl-ful swtchng. Th mol thn fatus an agggat of mssonntnsv an ta-xos non-ng goos whch a f to as sctos at s of cabon laag n th olc bat an a lgbl fo fntal msson gulaton (EU 009). Th agggat of msson-ntnsv an ta-xos commots nclus on an stl, chmcal oucts, non-fous mtals, non-mtallc mnals, a-ul-nt, an tansot. All manng commots a summaz though a comost maco goo. Wth sct to gonal sagggaton, th mol covs mao nustalz an vlong gons that a cntal to th clmat olc bat: th EU, th U.S., Canaa, Jaan, Austala an Nw Zalan, Russa, Chna, Ina, Bazl, Mxco, an South Afca. In aton, th oganzaton of ol xotng counts (OPEC) s ncooat along wth a comost gon fo th st of th wol. As s customa n al gnal qulbum analss, bas a ata togth wth xognous lastcts tmn th f aamts of th functonal foms. Elastct valus n ntnatonal ta (Amngton lastcts) an omstc oucton a bas on mcal stmats ot n th GTAP atabas; sul lastcts fo fossl fuls a tan fom th conomtc ltatu (Gaham t al. 999, Kchn 6 Pouct htognt mlctl ovs ach count wth mat ow n ntnatonal ta. Dnng on ntal ta shas an th as of substtuton btwn mots an omstcall ouc goos (catu b ta lastcts) omstc olcs affct ntnatonal cs,.., th tms of ta.

14 00). 3. Polc Scnaos Tho suggsts that ntnatonal mat ow an concns on global nvonmntal ffctvnss nuc a unlatall abatng gon to ffntat msson cs acoss omstc sctos. Fom a boa olc sctv th quston, howv, s to what xtnt ffntal msson cng can uc global conomc austmnt cost (un th laag motv) o b us fo bun shftng (un th tms-of-ta motv). If t tuns out that th otntal fo both global cost savngs an xlotaton of ntnatonal mat ow s qut lmt, thn unfom msson cng aas as a actcal snc oltcall ath uncontovsal guln fo unlatal clmat olc sgn. In ou quanttatv analss, scnao Rf ovs th fnc of a non-statgc unlatal clmat olc wh th abatng gon s stct to unfom msson cng acoss all sctos. 7 W thn nvstgat how conomc macts chang as msson c ffntaton bcoms a vabl olc oton. Wth two otntal motvs fo c ffntaton w gt fou statgc scnaos. Scnao Non assums that unlatal gulaton full gnos ntnatonal sllovs,.., nth laag ffcts no ntnatonal mat ow a account fo. Scnao Laag ostulats that unlatal gulaton conss laag but can not xlot tms of ta as w qu th abatng gon to comnsat non-abatng gons at th -olc wlfa lvl. Scnao ToT conss th cas that th unlatall abatng gon uss ffntal msson cng to xlot tms of ta but os not ca fo laag. Scnao Laag_ToT assums that unlatal clmat olc s concn about laag an at th sam tm can ta avantag of ntnatonal mat ow though ffntal msson cng. Tabl summazs th motvs fo msson c ffntaton valng n th fou statgc scnaos. Scnao Non svs as a consstnc chc fo th numcal mlmntaton of ou otmal taxaton famwo. In th absnc of th laag an th tms-of-ta motvs conomc tho ls an unambguous sult fo otmal msson cng whn w stat fom a mat qulbum wthout o stotons: mssons shoul b unfoml c acoss all omstc soucs to mnmz omstc austmnt cost. Th ffnc btwn scnaos Non an Rf thn bols own to ncom ffcts bcaus th latt os not mos comnsatng tansfs. 7 Th Rf scnao sttng cosons to th stana sgn ul of unlatal msson abatmnt wh th gulato achvs a manat omstc msson ucton though unfom (non-statgc) msson cng. Th mact assssmnt of scnao Rf os not qu an otmal taxaton famwo an can b bas on convntonal CGE analss wthout a suonat obctv functon. 3

15 Tabl : Chaactzaton of statgc msson cng scnaos Scnao Laag Motv Tms-of-Ta Motv Non No No Laag Ys No ToT No Ys Laag_ToT Ys Ys In th fou statgc scnaos w focus on ffntal msson cng btwn msson-ntnsv an ta-xos nusts (thaft f to as EIS) on th on han an th st of th conom (thaft f to as OTH) on th oth han. Th sgmntaton nto ths catgos flcts ongong olc actc of ffntal nvonmntal gulaton n nustalz counts (OECD 007). Acoss all fv scnaos w must th global nvonmntal outcom constant n o to coma cost-ffctvnss of altnatv unlatal clmat olc sgns. Th global nvonmntal msson tagt s st qual to th sum of th tagt unlatal msson lvl an th busnss-asusual mssons of all oth ungulat gons. Fo scnaos Laag an Laag_ToT whch ncooat th laag motv th global msson constant s sml a to th sstm of gnal qulbum contons. Fo scnaos Non an ToT th laag motv must b suss an w thfo cannot nclu th global msson tagt as a smultanous qulbum conton n ou otmal taxaton oblm. Insta w must solv a squnc of otmzaton oblms untl w mt th global nvonmntal tagt though tatv scalng of th unlatal msson abatmnt tagt. As to scnao Rf wh th abatng gon has no choc fo ffntal msson cng w can agan a th global msson constant to th smultanous sstm of qulbum contons. In ou cntal cas smulatons w cons unlatal abatmnt of th th EU o th U.S. wh olc concns on laag a v outson an hav motvat olc oosals fo scal tatmnt of msson-ntnsv an ta-xos nusts. W assum a unlatal msson ucton tagt of 0 cnt vs-à-vs msson lvls n 004 whch oughl flcts lgs of th sctv govnmnts fo th Post-Koto aa. Not that th bas a (004) flcts a stuaton wh th Koto Potocol has not nt nto foc an clmat olcs a almost absnt ntnatonall. 3.3 Smulaton Rsults Po to th tal nttaton of smulaton sults w flct on motant conomc mchansms that v th magnal an nfamagnal cost of unlatal msson abatmnt n th snc of ntnatonal sllovs. Fgu aws on th sml noton of magnal abatmnt cost cuvs to llustat th laag motv fo ffntal msson cng btwn EIS an OTH sctos. In th Rf scnao wthout 4

16 statgc msson cng th gulatng gon qualzs magnal abatmnt cost to mnmz ct cost of msson abatmnt. To offst laag L Rf th gon must ncas ts ognal abatmnt lg A 0 to A Rf. As w ncooat th laag motv fo statgc c ffntaton un scnao Laag, th gon ucs laag though fntal msson cng of EIS sctos to low ts omstc msson ucton qumnt A Laag fo mtng th ovall (global) msson ucton constant. In Fgu ths laag ucton s catu though th lft shft of th OTH magnal abatmnt cost cuv. Th gon must ta off th ncmntal gans fom uc omstc msson abatmnt wth th ncmntal xcss cost of msson abatmnt u to vgng magnal abatmnt cost (.., t maxmzs th ffnc btwn th vtcall an hozontall sha aas n Fgu ). 8 Fgu : Laag motv fo ffntal msson cng MAC MAC: magnal abatmnt cost MAC EIS LEAKAGE OTH REF OTH OTH LEAKAGE EIS Intal abatmnt lg A 0 Rf Abatmnt A Abatmnt A Laag L L Laag Rf In ou quanttatv analss blow w fn that whl th laag motv can la to a stnct fntal tatmnt of EIS nusts, th sco fo laag ucton s ath small. Th ason s that laag s omnantl vn though obust ng mat austmnts assocat wth th n fo fossl ful us ucton to mt th global cabon constant. Fgu futhmo vsualzs that th ct (atal qulbum) cost of msson ucton n on th ffctv msson 8 Not that th nt gans fom th xlotaton of ntnatonal mat ow un th tms-of-ta motv a smlal lmt though th xcss cost of abatmnt as magnal abatmnt cost fo OTH an EIS sctos fall aat. 5

17 ucton qumnt an th as of substtutng awa fom cabon (catu though th stnss of th magnal abatmnt cost cuv): th hgh th tagt msson cutbac an th st th magnal abatmnt cost cuv, th mo xnsv msson ucton bcoms. Tms-of-ta ffcts consttut anoth motant tmnant of conomc macts tgg b msson gulaton of on conoms. Wth a szabl ucton of global fossl ful man, tmsof-ta ffcts wo lagl though th sson of ntnatonal ful cs (Böhng an Ruthfo 00) bngng about gans fo ful mots an losss fo ful xots. Tabl summazs quanttatv macts fo unlatal acton of th th EU o th U.S. Th msson c ato as ou co mtc fo th g of msson c ffntaton ots magnal abatmnt cost n msson-ntnsv an ta-xos nusts (EIS) ov magnal abatmnt cost n th oth sgmnts of th omstc conom (OTH). Whl unfom cng n scnao Rf s xtnall mos, t s th otmal choc of th abatng gon n scnao Non: as ct n ou thotcal analss unlatal gulaton chags a unfom c fo ach omstc us of th cabon ollutant f tms-of-ta an laag motvs a absnt. Th unfom msson c to cut bac global mssons b 0 cnt of th omstc busnss-as-usual mssons s hgh fo th EU than fo th U.S. Th ason s that th U.S. has cha abatmnt otons coma to th EU, both wth sct to ng ffcnc movmnts as wll as wth sct to ful swtchng (atculal n lctct gnaton whch s much mo cabon-ntnsv n th U.S. than th EU). Th small ffnc btwn unfom msson cs n scnaos Rf an Non s u to ncom ffcts. 9 As xct, th u laag motv catu b scnao Laag las to an unambguous msson c ffntaton n favo of msson-ntnsv an ta-xos nusts. Low msson cs allvat th cost savantag fo ths nusts latv to comttos aboa. Un otmal c ffntaton th ncas n ct abatmnt cost (u to vgng magnal abatmnt cost acoss sgmnts of th omstc conom) a offst at th magn b th nct gans of uc msson laag (an thus uc omstc abatmnt). Ou quanttatv sults bas on mcal ata ncat that msson-ntnsv an ta-xos nusts n th EU o th U.S. a substantall low msson cs un th u laag motv than th st of th conom. Th ctonal mlcatons of th u tms-of-ta motv snt b scnao ToT a ambguous an n on ta chaactstcs, most notabl ta ntnsts an ta lastcts. 9 Th U.S. an EU conoms bnft fom tms-of-ta ffcts (n atcula fom low ntnatonal fossl ful cs) n scnao Rf whch must b comnsat fo n scnao Non. Thus, th ncom (an ng man) s hgh n scnao Rf whch xlans th hgh msson c coma to scnao Non. 6

18 Tabl : Summa of quanttatv macts fo altnatv msson cng statgs Rf Non Laag Unlatal (omstc) abatmnt b EU Emsson c ato (EIS/OTH),00,00 0,59 EIS msson c ($ ton of C) 4 3 OTH msson c ($ ton of C) 4 4 Domstc EIS oucton (% fom BaU) -5,8-5,55-4,53 Fogn EIS oucton (% fom BaU),48,36,95 Laag at (n %) 36,73 36,75 35,75 Domstc cost (n % HEV) -0,009-0,653-0,640 Fogn cost (n % HEV) -0, Global cost (n % HEV) -0,83-0,0-0,98 Unlatal (omstc) abatmnt b USA Emsson c ato (EIS/OTH),00,00 0,57 EIS msson c ($ ton of C) 66 OTH msson c ($ ton of C) 6 Domstc EIS oucton (% fom BaU) -5,7-5,4-3,98 Fogn EIS oucton (% fom BaU) 0,77 0,75 0,57 Laag at (n %) 6,5 6,46 5,3 Domstc cost (n % HEV) -0,08-0,4-0,37 Fogn cost (n % HEV) -0, Global cost (n % HEV) -0,074-0,077-0,075 K: EIS ng-ntnsv an ta-xos sctos, OTH manng sgmnts of th conom, BaU busnss-asusual, HEV Hcsan quvalnt vaaton n ncom 7

19 Th ncl logc bhn ffntal msson cng as a substtut fo otmal taffs s to ma th count act as monoolsts on xot mats (.., ncasng th cs of xot goos) an as a monosonst on mot mats (.., subszng omstc oucton of goos that comt on mot mats). Dawng on th bnchma ata, th EU s a nt xot of msson-ntnsv goos an a nt mot of th comost maco goo thfo th tms-of-ta motv suggsts hgh ath than low msson cs fo omstc msson-ntnsv oucton. In tun, th U.S. whch s a nt mot of msson-ntnsv goos gos fo low msson cs n th msson-ntnsv scto n o to scmnat aganst comtng mots, thb ucng mot man an mot cs. A otntall motant olc nsght n th bat on bgga-th-nghbou statgs s that unlatall abatng counts wth a stong xot oston fo msson-ntnsv oucts can hal b accus of slfsh tms-of-ta xlotaton shoul th mos low msson cs on msson-ntnsv nusts than on th st of th conom. If both motvs fo c scmnaton ovla (scnao ToT_Laag), th cton of c scmnaton s a o not cla fo th cas of nt xots of msson-ntnsv goos snc th tms-of-ta motv an th laag motv wo n oost cton. Th combn ffct fo nt mots of msson-ntnsv goos, on th oth han, s unambguous snc both laag an tms-of-ta motvs ml low msson cng n favo of msson-ntnsv an ta-xos nusts. Th smulaton sults ncat that th absolut msson c lvl fo th oth sgmnts of th conom (OTH) mans latvl stabl nnnt of statgc msson cng. Th asonng bhn s twofol. Fst, msson-ntnsv an ta-xos nusts (EIS) onl account fo th small at of conom-w mssons n th EU an th U.S. 0 Scon, th magnal abatmnt cost cuv fo OTH s flatt than that fo EIS ontng to cha msson mtgaton ossblts outs EIS (to a lag xtnt bcaus of low-cost ful swtchng otons n th lctct scto). To a fst aoxmaton, th macts on msson-ntnsv an ta-xos oucton flct th cost ncas fo fossl ful us n ths nusts. Emsson cng thb not onl affcts comaatv avantag of omstc msson-ntnsv an ta-xos oucton vs-à-vs oucton of th sam goos aboa but also th comttv stuaton wth sct to th oucton of oth goos. Th low th unlatal msson cs fo EIS, th lss onounc s th cas n omstc EIS oucton an vsl th ncas n EIS oucton aboa. Fo th EU, th u laag motv las to th lowst msson cs fo msson-ntnsv nusts whas th u tms-of-ta motv mls th hghst msson cs call that th EU as a nt xot of msson-ntnsv oucts uss ffntal msson cng as a substtut fo statgc xot taxs 0 Emsson-ntnsv an ta-xos nusts account fo 8.3 cnt (.9 cnt) of busnss-as-usual mssons n th EU (th U.S.). 8

20 on ths goos. Th cln n EU msson-ntnsv an ta-xos oucton s thfo lowst fo scnao Laag an hghst fo scnao ToT. Fo th U.S., whch s a nt mot of msson-ntnsv goos, both th tms-of-ta an laag motvs ml a fntal tatmnt of msson-ntnsv an ta-xos nusts EIS oucton losss a most moat fo scnao Laag follow b scnaos Laag-ToT an ToT. Dffntal msson cng un laag an tms-of-ta motvs nucs stnct changs n EIS oucton macts coma to unfom msson cng but th mlcatons fo msson laag a qut small. Th laag at whch s fn as th chang n mssons of ungulat gons ov th chang n mssons of th gulatng gon angs btwn 35.7 to 38.3 cnt fo EU unlatal acton an 5.3 to 6.5 cnt fo U.S. unlatal acton. On ason fo th substantall hgh laag ats tgg b EU acton s that th EU s a mo on conom than th U.S., manng that mots an xots consttut a lag sha of th conom n th EU. Ths s tu both fo msson-ntnsv goos an fo fossl fuls, wh th EU s a much bgg mot (latv to own consumton) than th U.S. Anoth ason fo hgh laag ats wth unlatal EU abatmnt olcs s that msson-ntnsv nusts n th EU a lss cabon-ntnsv than th sam nusts n th U.S. Thus, locaton of nustal actvts awa fom th abatng gon has mo avs ffcts on global mssons whn th EU moss unlatal clmat olcs. In qualtatv tms, th changs n laag ats go along wth th ffntal macts on mssonntnsv an ta-xos oucton (both omstcall an aboa) tgg b altnatv msson cng statgs. Th laag at s smallst fo th lowst msson c to EIS oucton whch occus un th u laag motv (scnao Laag) fo both gons. Th laag at s bggst fo th hghst msson c to EIS oucton whch wll b st un th u tms-of-ta motv (scnao ToT) fo th cas of EU acton an wth unfom msson cng (th non-statgcall un scnao REF o n th absnc of both motvs un scnao Non) fo th cas of U.S. acton. As not bfo, th sco fo laag ucton though fntal msson cng of omstc EIS oucton s qut lmt. Ths can b tac bac to th omnant ol of obust ng mat austmnts fo laag. Th sctoal contbuton to laag fom msson-ntnsv an taxos nusts amounts to oughl a th of th total laag at (oth motant non-eis contbutos a ow gnaton an fns) fo th EU an th U.S. Laag s howv not onl caus b th locaton of oucton but also though changs n msson ntnsts: whl omstc oucton ucs msson ntnst bcaus of msson cost, oucton aboa bcoms mo msson-ntnsv as ntnatonal ful cs go own. If on abstacts fom changs n ng ntnst thn th sctoal contbuton of EIS oucton to laag os substantall an t bcoms cla that th ffntal macts on EIS oucton fom altnatv msson cng statgs has onl a lmt mact on th global laag at. 9

21 Fnall, w scuss th mlcatons of altnatv msson cng statgs fo global costffctvnss an th conomc bun to th gulatng gon as wll as to th comost of ungulat gons. Economc cost (wlfa) a masu as Hcsan quvalnt vaaton (HEV) n ncom,.., th amount of mon whch s ncssa to a to (o uct fom) th busnss-as-usual ncom of th sntatv consum so that sh nos a utlt lvl qual to th on n th countfactual olc scnao on th bass of x-ant latv cs. Th mtc fo masung global ffcnc costs of th ffnt olcs s bas on a utltaan sctv,.., w a u monmtc utlt wth qual wghts acoss all gons (thb bng agnostc on cost stbuton). Ou quanttatv sults confm th qualtatv thotcal nsght that fntal msson cng of ng-ntnsv an ta-xos nusts to countact laag wll mov global costffctvnss of unlatal abatmnt acton: as w tanst fom scnao Non to scnao Laag o lws fom scnao ToT to scnao ToT_Laag global conomc austmnt cost to ach a gvn ucton n global mssons though unlatal acton cln. Howv, th global cost savngs a ath small whch agan can b tac bac to th lmt otntal fo cost-ffctv laag ucton though msson c ffntaton btwn EIS an OTH nusts. W also s that th otntal fo bun shftng though statgc xlotaton of ntnatonal mat ow s v lmt whn w coma ffntal msson cng un scnao ToT (.., th u tms-ofta motv) wth non-statgc unfom msson cng un scnao Rf: th cost stbuton btwn th unlatall abatng gon an th comost of ungulat gons hal changs. In fact, fo th cas of EU unlatal acton th EU fas vn btt wthout statgc cng at all as ts gans fom xlotng ntnatonal mat ow though hgh cs on EIS goos a mo than offst though th hgh cost of laag austmnt. W hav ntouc comnsatng tansfs n ou analss as a mans to comos th tms-ofta an laag motvs fo msson c ffntaton. Yt, th also lucat th cucal ol of tms-of-ta ffcts on ntnatonal ng mats fo th cost ncnc of msson ucton that has bn ont out n vous sach (Böhng an Ruthfo 00). A global msson cutbac qus n fst lac uctons n fossl ful man, ssng ntnatonal ful cs. Lag ful mots such as th EU o th U.S. bnft fom th cln n ntnatonal ful cs whch ma offst a substantal at of th ma msson abatmnt cost whl shftng th bun n atcula to ful xots such as OPEC o Russa. Fo both th EU an th U.S. th chast unlatal clmat olc s to account fo laag an at th sam tm full xlot tms of ta (scnao Laag_ToT wthout comnsaton). If th EU o th U.S. must comnsat th st of th Not that fo th EU th u tms-of-ta motv las to th hghst laag at whch ns to b offst b ncas omstc abatmnt; t, ths laag ffct s not nognous to th otmzaton oblm of th EU snc w suss th laag motv. Snstvt analss on th stngnc of unlatal an thus global msson ucton tagts shows that fo a low unlatal msson ucton lg of 5 % th tms-of-ta gans can vn outwgh th ma cost of msson abatmnt fo th U.S. o th EU lavng thm btt off coma to a busnss-as-usual stuaton wthout clmat olc. 0

22 wol fo tms-of-ta losss as qust un scnaos Non an Laag unlatal abatmnt s much mo costl fo thm. Whn w coma th magntu of conomc cost fo th EU o th U.S. acoss scnaos Rf (no comnsaton an no statgc c ffntaton), NONE (comnsaton an no laag austmnt motv) an scnao ToT (no comnsaton an statgc c ffntaton to xlot tms of ta) t bcoms cla that th bul at of tms-of-ta changs a not assocat wth statgc c ffntaton btwn EIS an OTH nusts but stm fom obust ng mat austmnts. To sum u: whl ffntal msson cng motvat b global nvonmntal concns o ntnatonal mat ow can la to substantal vatons fom unfom msson cng, th nfamagnal ffcts on global cost-ffctvnss an bun shang a small. Laag an tms-ofta ffcts a lagl tmn b obust ng mat austmnts un a global msson constant. Th sco fo statgc sonss to ntnatonal sllovs though c ffntaton btwn msson-ntnsv an ta-xos nusts an th st of th conom s lmt though th ncas of ct abatmnt cost assocat wth ffntal msson cng. 3.4 Snstvt Analss W hav fom xtnsv snstvt analss to unstan how changs n assumtons affct ou conclusons. W fn that ou nsghts gang th mlcatons of th tms-of-ta an laag motvs fo ffntal msson cng an th nfamagnal wlfa cost man obust. In ou cntal cas smulatons, ng mat austmnts account fo a lag sha of tms-ofta changs an msson laag. Th sonsvnss of ntnatonal ful mats to changs n ng man s tmn b sul lastcts. Low (hgh) lastcts ml that fossl ful cs o mo (lss) as a consqunc of ng man uctons wth oost wlfa mlcatons fo ful xotng an ful motng gons. Th low (hgh) th ng sul lastct th stong (wa) s th ng mat channl fo laag an thus th stong (wa) s th cas fo laag-motvat c ffntaton n favo of msson-ntnsv nusts. Amngton ta lastcts that catu th as of substtuton btwn omstc goos an mot goos consttut an motant v fo th magntu of laag an tms-of-ta ffcts. Changs n ths lastcts affct th latv motanc of th laag motv vsus th tms-ofta motv fo msson c ffntaton. Hgh Amngton lastcts cts abus ml mo laag an lss sco fo tax bun shftng so th laag motv bcoms mo motant coma to th tms-of-ta motv. Wthn ou cntal cas smulatons, th abatng gon has a unlatal msson ucton lg of 0 cnt wth sct to th bas-a msson lvl. Changs n th stngnc of th msson ucton lvl affct both th magntu of c ffntaton assocat wth ffnt motvs as

23 wll as th lvl of conom-w austmnt cost. Not susngl, hgh ucton tagts la to an uwa-shft of avag msson cs an an ncas n total conomc cost. Fo suffcntl low ucton tagts, ful motng gons ma b abl to offst th cost of unlatal abatmnt though tms-of-ta gans on ng mats. Th laag agumnt fo lowng msson cs n favo of msson-ntnsv an ta-xos nusts oucton bcoms mo motant towas hgh msson ucton qumnts as th ncas n omstc msson cs nhancs comaatv cost avantag of fogn comttos. Th gons cons fo unlatal abatmnt n ou cntal cas smulatons cov th EU an th U.S. as th most motant nustalz gons that a ala un wa (th EU) o mght follow sut wth omstc msson constants. Both, th EU as wll as th U.S. a mots of fossl fuls an thus can bnft fom th sson of ntnatonal fossl ful cs assocat wth th global ucton n fossl ful mans. If on conss comnsatng tansfs that nclu tms-ofta losss o gans on ng mats as a vabl olc oton, 3 th anng of olc scnaos s obvousl qut ffnt fom th sctv of fossl ful xots such as Russa o OPEC. Th latt woul f to gt comnsat fom th st of th wol fo th tms-of-ta losss that occu mal on th ng mats u to tagt (global) cabon msson uctons. As w suss th tms-of-ta motv, unlatall abatng ful xots cv a nt tansf fom nonabatng gons (ng non-abatng gons at th busnss-as-usual wlfa lvl). Thus, ng xots a bst off un scnao Laag wh th cv a nt ncom tansfs fom th st of th wol an mlo c ffntaton to mtgat laag. Most xnsv fo thm among th fou statgc cng vaants s scnao ToT: n ths cas th can t to xlot tms-of-ta gans on non-ng goos mats but a lft wth th omnant tms-of-ta losss on th ntnatonal ful mats (n aton, ffcnt laag austmnt s not statgcall tan nto account n ths scnao). 4. Conclusons As long as th wol communt fals to achv a boa-bas ntnatonal agmnt wth bnng multlatal msson ucton tagts, gnhous gas msson ucton hngs on unlatal acton b nustalz counts acnowlgng hstocal sonsblt an ablt-to-a. Costffctvnss of unlatal clmat olc ma, howv, b sousl ham though msson laag to ungulat gons. Concns on global nvonmntal ntgt of unlatal msson contol ov an motant agumnt fo fntal tatmnt of msson-ntnsv an ta- 3 In ou vw, comnsaton fo ng mat austmnts whch a nvtabl ln to clmat otcton s not v alstc though ful xotng gons ma aal to Atcls 4.8 an 4.9 of th Unt Natons Famwo Convnton on Clmat Chang (UN, 99) that vlong counts can clam comnsaton fo nuc conomc cost of clmat olcs b nustalz counts. Lag ful xots on th on han ma not qualf as vlong counts. In aton, comnsaton fo th ntnalzaton of th gnhous gas xtnalts woul contact th boal acct noton of th ollut-as ncl.

24 xos sctos. At th sam tm, th laag motv fo ffntal msson cng cannot b asl stngush fom otntal ntsts of th abatng gon to xlot ntnatonal mat ow though statgc tms-of-ta manulaton. In a oltcal conom sctv th laag agumnt ma also b mlo b omstc lobb gous wth th obctv to lut nvtabl stuctual chang n favo of scfc nusts. In ths a w hav vlo a thotcal famwo of how to comos th laag motv fom th tms-of-ta motv fo ffntal msson cng n th snc of ntnatonal sllovs. W thn hav mlmnt ou comoston mtho n a lag-scal comutabl gnal qulbum mol of global ta an ng us to asctan th latv motanc of ths motvs fo th cton an magntu of msson c ffntaton as wll as th nuc nfamagnal austmnt cost. Th man nsght fom ou quanttatv analss s that th sco fo global ffcnc gans an bun shftng though statgc msson c ffntaton s ath lmt. Th ason s that conomc austmnt to global msson constants to b achv b unlatal abatmnt s lagl vn b obust ntnatonal ng mat ffcts nnnt fom altnatv omstc msson cng statgs. Unlatall clmat olc ma thfo b wll avs to stc to th sml fst-bst ul of unfom msson cng ath than mbang on comlx scon-bst agumnts whch ma caus tmntal conflcts wth tang atns. Rfncs Anson, K. (99), Th Stana Wlfa Economcs of Polcs Affctng Ta an th Envonmnt, n K. Anson an R. Blachust, s., Th Gnng of Wol Ta, Unvst of Mchgan Pss, Amngton, P.S. (969), A Tho of Dman fo Poucs Dstngush b Plac of Poucton, IMF Staff Pas 6, Ba, N. G. an T. L. Walmsl (008), Global Ta, Assstanc an Poucton: Th GTAP 7 Data Bas, Cnt fo Global Ta Analss, Puu Unvst, Wst Lafatt. Böhng, C. an T.F. Ruthfo (00), "Cabon Abatmnt an Intnatonal Sllovs", Envonmntal an Rsouc Economcs (3), Böhng, C., R.S.J. Tol, an T.F. Ruthfo (009), "Th EU 0/0/00 Tagts: an Ovvw of th EMF Assssmnt", Eng Economcs, 3(), Böhng, C. an T.F. Ruthfo (00), "Th Costs of Comlanc: A CGE Assssmnt of Canaa s Polc Otons un th Koto Potocol", Th Wol Econom, 33 (), 77-. Fl, S. an T. F. Ruthfo (993), Unlatal Ructons an Cabon Laag: Th Effct of Intnatonal Ta n Ol an Basc Matals, Jounal of Envonmntal Economcs an Managmnt, 5, EU (009), Commsson Dcson of Dtmnng, Pusuant to Dctv 003/87/EC of th Euoan Palamnt an of th Councl, a Lst of Sctos an Subsctos whch a Dm to b Exos to a Sgnfcant Rs of Cabon Laag 00. Avalabl at: htt://c.uoa.u/nvonmnt/clmat/msson/f/aft_c_cabon_laag_lst6s.f Gaham, P., S. Tho an L. Hogan (999), Non-comttv mat bhavo n th ntnatonal cong coal mat, Eng Economcs,

25 Hol, M. (99), Global Envonmnt Poblms: Th Effcts of Unlatal Actons Tan b On Count, Jounal of Envonmntal Economcs an Managmnt, 0, Hol, M. (996), Shoul a cabon tax b ffntat acoss sctos?, Jounal of Publc Economcs, 59, 7 3. Kchn, N. (00), Wol cu ol an natual gas: a man an sul mol, Eng Economcs 4, Kutlla, K. (99), Envonmntal Rgulaton n an On Econom, Jounal of Envonmntal Economcs an Managmnt, 0, 7 4. OECD (007), OECD/EEA atabas on nstumnts us fo nvonmntal olc an natual soucs managmnt, Tchncal Rot, Oganzaton fo Economc Co-oaton an Dvlomnt, Pas 007. Avalabl at: htt:// UN (99), Unt Natons Famwo Convnton on Clmat Chang, Nw Yo, 9 Ma 99, n foc, Mach

26 5 A Mathmatcal Poofs Poof of quaton (0) Dffntatng th balanc of amnts n (6), w obtan ) ( ) ( c c W can now ffntat th sctv oucton functons an obtan: ) ( ) ( f f f c c Notng that f an f, ths las to c c 0 ) ( whch ovs quaton (0). Poof of quaton (3) Pluggng () nto th fst o conton 0 ] / / [ / c, w mmatl obtan: / / / / ) ( ) ( ) ( ) ( ) ( ] [ ] [ ] [ / / ) / / ( / / / 0 f f f f f f c wh, n th last st, w us th mat claanc conton fo th ng mat.

27 B Algbac Mol Summa Two classs of contons chaactz th comttv qulbum fo ou mol: zo oft contons an mat claanc contons. Th fom class tmns actvt lvls an th latt tmns c lvls. In ou algbac xoston, th notaton u s us to not th oft functon of scto n gon wh u s th nam assgn to th assocat oucton actvt. Dffntatng th oft functon wth sct to nut an outut cs ovs comnsat man an sul coffcnts (Sha s lmma), whch aa subsquntl n th mat claanc contons. W us (alas wth ) as an nx fo commots (sctos) an (alas wth s) as an nx fo gons. Th labl EG snts th st of ng goos an th labl FF nots th subst of fossl fuls. Tabls B. B.6 xlan th notatons fo vaabls an aamts mlo wthn ou algbac xoston. Not that wth sct to th gnal notaton of ou olc otmzaton oblm, Tabl B. summazs th actvt vaabls of vcto wthn z whas Tabl B.3 summazs th c vaabls of vcto. Fgus B. B.4 ov a gahcal xoston of th oucton an fnal consumton stuctu. B. Zo Poft Contons. Poucton of goos xct fossl fuls FF : 0 - KLE - KLE KL KL KL Y X X X A KLE KLE E - ( ) E E L = L + ( ) w v - EG. Poucton of fossl fuls FF : X X X, ( ) Q CO CO q ( ) L w K v 0 Y Q Q FF FF FF A = = - t a 3. Scto-scfc ng agggat FF : E E = - = 0 COA CO CO CO CO ELE ELE A ELE COA A COA LQ A LQ { ELE, } ( ) COA, t acoa ( ) t a LQ Q Q COA LQ ELE ELE COA 6

28 4. Amngton agggat: A A A A = A - M A + A ( ) = 0 5. Agggat mots acoss mot gons: M M = - s = 0 s s M M M X 6. Houshol consumton man: C = C - E E - EC E A C + (- ) C C EG - EC - EC 0 7. Houshol ng man: E E A CO CO = C - tc a 0 C EG B. Mat Claanc Contons 8. Labo: L = Y 9. Catal: K = Y w Y v Y 0. Natual soucs: Q = Y q Y FF. Outut fo omstc mats: Y Y = A. Outut fo xot mats: Y Y X = s M s A M s X 3. Scto scfc ng agggat: E =Y Y E 7

29 4. Imot agggat: M = A A M 5. Amngton agggat: A = Y Y A +C C A 6. Houshol consumton: C C = w L FF FF FF + v A K + CO CO a t A CO CO A CO CO t a FF FF t a t E CO C FF a q E CO Q a t CO CO C CGD, Y CGD, B Y a t CO CO 7. Agggat houshol ng consumton: C C= E C E C 8. Cabon mssons: CO = A a CO Tabl B.: Sts s EG FF LQ Sctos an goos Alas wth Rgons Alas wth All ng goos: Coal, cu ol, fn ol, gas an lctct Pma fossl fuls: Coal, cu ol an gas Lqu fuls: Cu ol an gas Tabl B.: Actvt vaabls Y E M A C Poucton n scto an gon Agggat ng nut n scto an gon Agggat mots of goo an gon Amngton agggat fo goo n gon Agggat houshol consumton n gon 8

30 E Agggat houshol ng consumton n gon C Tabl B.3: Pc vaabls X Outut c of goo ouc n gon fo omstc mat Outut c of goo ouc n gon fo xot mat E M A C E C w v q Pc of agggat ng n scto an gon Imot c agggat fo goo mot to gon Pc of Amngton goo n gon Pc of agggat houshol consumton n gon Pc of agggat houshol ng consumton n gon Wag at n gon Pc of catal svcs n gon Rnt to natual soucs n gon ( FF) CO t Cabon tax n gon ffntat acoss soucs (={C, }) Tabl B.4: Cost shas X Sha of xots n scto an gon Sha of ntmat goo n scto an gon (FF) KLE Sha of KLE agggat n scto an gon (FF) Sha of ng n th KLE agggat of scto an gon (FF) E L Sha of labo n valu-a comost of scto an gon (FF) Q Sha of natual soucs n scto of gon (FF) FF T Sha of goo (T=) o labo (T=L) o catal (T=K) n scto an gon (FF) COA Sha of coal n fossl ful man b scto n gon (FF) ELE LQ Sha of lctct n ovall ng man b scto n gon Sha of lqu fossl ful n lqu ng man b scto n gon (FF, LQ) M s A E C Sha of mots of goo fom gon s to gon Sha of omstc vat n Amngton goo of gon Sha of comost ng nut n houshol consumton n gon Sha of ng goo n ng houshol consumton man n gon Sha of non-ng goo n non-ng houshol consumton man n gon 9

31 Tabl B.5: Enowmnts an mssons coffcnts L K Q Agggat labo nowmnt fo gon Agggat catal nowmnt fo gon Enowmnt of natual souc fo gon (FF) B Balanc of amnt fct o sulus n gon (not: B 0 ) CO Cabon msson constant fo gon CO a Cabon mssons coffcnt fo fossl ful (FF) Tabl B.6: Elastcts Tansfomaton btwn oucton fo th omstc mat an oucton fo th xot KL Substtuton btwn labo an catal n valu-a comost of oucton n scto Substtuton btwn ng an valu-a n oucton 0.5 KLE Q Substtuton btwn natual soucs an oth nuts n fossl ful oucton calbat consstntl to xognous sul lastcts. Substtuton btwn lctct an th fossl ful agggat n oucton 0.3 ELE Substtuton btwn coal an th lqu fossl ful comost n oucton 0.5 COA Substtuton btwn gas an ol n th lqu fossl ful comost n LQ oucton FF 4 [0..4] COA =4.0 CRU =.0 GAS =.0 A Substtuton btwn th mot agggat an th omstc nut [. 5.] M Substtuton btwn mots fom ffnt gons [4. 0.4] Substtuton btwn th fossl ful comost an th non-fossl ful EC consumton agggat n houshol consumton FF,C Substtuton btwn fossl fuls n houshol fossl ng consumton

32 Fgu B.: Nstng n non-fossl ful oucton Domstc mat vat CET Exot mat vat CES Non-ng ntmats (M) Lontf Catal-Labo-Eng (KLE) Catal-Labo (KL) CES Eng (E) CES CES Catal (K) Labo (L) Ol-Gas-Coal Elctct Ol-Gas Coal CES Ol Gas CES Fgu B.: Nstng n fossl ful oucton Domstc mat vat CET Exot mat vat Ful scfc souc CES Non-ful scfc souc nuts Lontf Intmat nuts Labo Catal Fgu B.3: Nstng n houshol consumton Fgu B.4: Nstng n Amngton oucton Amngton goo CES Domstc mat vat Exots fom oth gons (CES agggat) 3