International CO2 emissions targets and timetables: An analysis of the AOSIS proposal

In this paper, we use a two-region version of the CETA model to analyze international CO₂ emission control policies. The policies we consider are all substantially equivalent to a policy recently proposed by the Alliance of Small Island States (AOSIS). The AOSIS proposal requires the OECD alone to reduce emissions, while the alternatives we consider achieve equivalent reductions via emission rights traded (1) between regions, (2) between time periods, or (3) both. We find that tradeable rights systems provide significant overall cost savings relative to the AOSIS proposal. Cost reductions may be roughly 60% for rights tradeable between regions, 50% for rights tradeable between time periods, and 95% for rights tradeable between regions and time periods. The benefits of these cost reductions accrue to both the OECD and the Rest of the World. Our results underscore the importance of using an efficient policy to achieve any given atmospheric concentration objective.