Welfare Effects of National Climate Policies and the Growth Rate of Interdependent Economies pp. 203-230
Authors: (Karl Farmer, Andreas Rainer, Department of Economics, University of Graz, Graz, Austria)
Abstract: After COP15 in Copenhagen 2009, national interests dominate negotiations for Post-Kyoto policies to mitigate global climate change. While enforceability on national levels clearly betters the prospects for global climate policy, there is the concern that national emission targets are set not ambitiously enough to prevent catastrophic climate change. This chapter investigates whether and why these concerns might be warranted within an overlapping generations’ model of two internationally interdependent economies with producer greenhouse gas emissions and national emission permits systems. We find that when the natural growth rate of the world economy is less than the real interest rate national permits reduction diminishes the welfare in both countries. Moreover, net foreign debtor countries (USA) have minor incentives than net foreign creditor areas (EU) to implement a more stringent climate policy. In general, it remains open whether dynamic inefficiency betters the prospects for national climate policy.