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Bringing the United States and major
developing countries to control their greenhouse gas
emissions will be the key challenge for the international
climate regime beyond the Kyoto Protocol. But in the current
quantity-based coordination, large uncertainties surrounding
future emissions and future abatement opportunities make the
costs of any commitment very difficult to assess ex ante,
hence a strong risk that the negotiation will be stalled.
The authors use a partial equilibrium model of the
international allowance market to quantify the economic
consequences of the main post-Kyoto quota allocation rules
proposed in the literature and to assess how robust these
consequences are to uncertainty on future population,
economic, and emissions growth. They confirm that,
regardless of the rule selected, the prices of allowances
and the net costs of climate mitigation for all parties are
very sensitive to uncertainty, and in some scenarios very
large. This constitutes a strong barrier against adopting
any of these schemes if no additional mechanism is
introduced to limit the uncertainty on costs. On the other
hand, parties' preferred (least-cost) rules are
essentially robust to uncertainty. And although these
preferences differ across countries, the authors'
analysis suggest some bargaining is possible if developing
countries make a commitment and join the allowance market
earlier in exchange for tighter quotas in the North. This
underscores the importance of the rules governing the entry
of new parties into the coordination. But the magnitude of
the win-win potential strongly depends on how different
abatement costs are assumed to be between industrial and
developing countries, and on how long that gap is assumed to persist.
