Annex I Differentiation Proposals: Implications for Welfare, Equity and Policy

Drawing upon a variety of different criteria, many nations have introduced proposals to differentiate the reductions in carbon emissions that would be required of industrialized nations in the short to medium term. This paper considers the relationship of these proposals to their underlying conceptions of equity, and to the self-interest of the nations proposing them. The MIT Emissions Prediction and Policy Assessment (EPPA) model is used to analyze the welfare implications of several prominent proposals, considering both cases where nations must carry out all emissions reductions domestically, and situations where trading in emissions permits is allowed. The consequences of applying two prominent differentiation measures to a global regime using a zero-based allocation of emissions rights is also explored. One conclusion is that a trading regime can yield important benefits in reducing potential conflict within developed nations, and help avoid complicated and divisive negotiations over burdensharing formulas.