Equity principles, mitigation and climate impacts: balancing welfare and costs

Abstract

Equity considerations are crucial for successful international climate change policy. In this paper, several ways of incorporating equity in evaluating national climate targets are examined by comparing reduction targets resulting from the traditional cost-minimisation approach with those based on effort-sharing regimes and welfare optimisation taking into account not only regional differences in income, emissions and mitigation costs but also the latest insights in damage costs. We find that considering damage costs in effort-sharing regimes, leads to more stringent targets for developed regions like Europe and the USA compared to cost minimisation. One way to implement such schemes is via the use of flexible instruments, possibly leading to financial flows from emission trading of over 400 billion US$/yr in 2035. A welfare-maximising approach without emission trading is an alternative option, which leads to results that reduce emissions and global inequality, with no financial transfers. The downside is that global mitigation costs are higher due to the lack of emission trading. The reduction targets presented in this research can serve as input for updating national climate targets and presents ways to directly incorporate equity into Integrated Assessment Models scenarios often used by the IPCC.