The economics of climate change mitigation: how to build the necessary global action in a cost-effective manner
This paper examines the cost of a range of national, regional and global mitigation policies and the corresponding incentives for countries to participate in ambitious international mitigation actions. The paper illustrates the scope for available instruments to strengthen these incentives and discusses ways to overcome barriers to the development of an international carbon price, based on the quantitative assessment from two global and sectorially-disaggregated CGE models. Key step towards the emergence of a single international carbon price will most likely involve the phasing out of subsidies of fossil fuel consumption and various forms of linking between regional carbon markets, ranging from direct linking of existing emission trading systems to more indirect forms through the use of crediting mechanisms. The paper discusses regulatory issues raised by the expansion of emission trading and crediting schemes as well as the complementary contribution of R&D policies. Finally, the paper emphasises the importance of incorporating deforestation into a global agreement as well as the key role of international transfers, not least to overcome the relatively strong economic incentives in some countries to free ride on other regions mitigation actions.