Zheng Wang · Jing Wu

Changxin Liu · Gaoxiang Gu

Integrated
Assessment Models
of Climate Change
Economics
Integrated Assessment Models of Climate Change
Economics
Zheng Wang Jing Wu Changxin Liu
• •

Gaoxiang Gu

Integrated Assessment
Models of Climate Change
Economics

123
Zheng Wang Changxin Liu
Institute of Policy and Management Beijing
Chinese Academy of Sciences China
Beijing
China Gaoxiang Gu
Population Research Institute
Jing Wu East China Normal University
Institute of Policy and Management Shanghai
Chinese Academy of Sciences China
Beijing
China

ISBN 978-981-10-3943-0 ISBN 978-981-10-3945-4 (eBook)

DOI 10.1007/978-981-10-3945-4
Library of Congress Control Number: 2017932428

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Preface

Global change is a challenge that mankind faces. Therefore, tackling global change
is an important task of scientists. I am a geographer and I have been working on
China’s historical climate change issue for a long time. We have a unique advan-
tage in this study because of the vast history of China. However, in 1999, I
gradually realized the importance of tackling climate change, and China as a
superpower should play a greater role in the study. I began to study the problem of
global climate change economics according to the requirements of Chinese
Academy of Sciences in 2007; further, I found that this is a complex scientific
problem combined with physical science and economic science. At this time, the
published paper of Prof. Nordhaus and Prof. Yang at AER in 1996 lits up me like a
lighthouse, through which I feel that the core problem is IAM.
The global economic crisis took place in 2008 when China was facing two
problems: on the one hand, actively involved in tackling global climate change,
which the Chinese government put forward the “energy saving and emission
reduction” policy; on the other hand, any country’s “energy saving and emission
reduction” measures are likely to affect other countries and the world economy under
the background of economic integration. The reduction measures of multi-countries
economic interactions need to be studied facing the global economic crisis. But at
this time, all the IAMs I have studied have no economic interaction among countries,
and therefore we need to do new exploration. In 2010 we introduced
Mundell-Fleming mechanism and technology advances into the popular RICE
model to construct MRICE (multifactor RICE), and its first application is the cal-
culation of emission reduction effect of Sino-US economic interaction in a global
common emission reduction, which was published in Economic Modeling. Since the
simulation requires software development, my graduates Lili Cui, Yihong Jiang,
Yiping Zheng, Huaqun Li, Huanbo Zhang, Gangqiang Li, and Jing Wu have been
taking part in the work. Jing Wu eventually wrote MRICES software system using
C#. At then I pay a visit to Prof. Nordhaus, who gave a friendly reception to me and
my assistant, answered some of my questions, and presented me the book of him and
Dr. Boyer. In 2012, after improving the characterization of technological progress,

v
vi Preface

Jing Wu, Shuai Zhang, and I completed MRICES-2012, which were released as a
public software.
In 2012, I was fortunate to know Prof. Zili Yang. Common scientific under-
standing and the affection as Chinese linked us together. We had meaningful dis-
cussions and he suggested us to focus on mixed emission reduction and game
theory. After 2012, we received a joint support from basic scientific research of
Ministry of Science and Technology of China and Chinese Academy of Science,
and completed the study on EMRICES in 2014. During this study, my graduates
Qianting Zhu, Changjiang Shao, Rui Huang, and Changxin Liu took part in this
work. As Jing Wu is the backbone of the first phase of the study, Changxin Liu is
the backbone of the second phase. Compared to MRICES-2012, carbon trading
analysis, sea level rise, and carbon tax impact analysis are included in EMRICES.
Unfortunately, due to various reasons, the impact analyses of sea level change,
carbon tax, and pollution tax are developed only in China’s module in EMRICES,
although it is theoretically possible in each economy.
Both MRICES and EMRICES include the keyword RICE to label that it is
developed on the basis of RICE. There is a Chinese proverb, “when you drink
water, never forget the man who digs the well.” MRICES and EMRICES use of the
word RICE to express our respect and gratitude to Prof. Nordhaus and Prof. Yang.
CIECIA in this book is another system we developed which is funded by the
basis science research project of Ministry of Science and Technology of China. For
the development of this system, we visited Prof. Caldeira at Stanford University,
and he discussed the algorithm of the carbon cycle model. CIECIA model for
depicting the technological progress and industrial structure evolution introduced
the mechanism of evolutionary economics. The global economic system is based on
global model from Dr. K.Y. Jin’s paper published at AER in 2013 combining with
our country economic interaction model. In principle, it is a global general equi-
librium model, reflecting the global economic integration, so it is more suitable for
studying global carbon governance issues. We hope this model can lead to more
scholars’ interests to global climate change governance under innovation and global
economic integration.
The authors thank the consistent support of academician Yihui Ding of Chinese
Academy of Engineering, academician Guanhua Xu, and academician Qun Lin of
Chinese Academy of Sciences, and Prof. Shiyuan Xu from East China Normal
University, commissioner Tongsan Wang of Chinese Academy of Social Sciences
for the work, and we also want to thank Prof. Nordhaus, Prof. Yang, and Prof.
Caldeira for their help. Thanks Springer for publishing the book.
The work is supported by major research project of Ministry of Science and
Technology of China and carbon special research projects of Chinese Academy of
Sciences.

Beijing, China Zheng Wang

January 2016
Contents

1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Integrated Assessment Model of Climate Change
and Economy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 The Classification of IAM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.3 IAM Modeling Principle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
1.4 Global Carbon Cycle Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
1.5 Shortcomings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
2 MRICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
2.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
2.2 Model Description . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
2.2.1 Economic System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
2.2.2 Emissions Mitigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
2.2.3 GDP Spillovers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
2.3 Parameter Estimation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
2.4 Assessment of Emissions Mitigation Strategies . . . . . . . . . . . . . . . 30
2.4.1 Egalitarian Allocation of Emissions Quotas . . . . . . . . . . . . 30
2.4.2 UNDP Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
2.4.3 Copenhagen Accord . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
2.4.4 A Strategy to Achieve the 2 °C Target . . . . . . . . . . . . . . . . 37
2.5 Conclusions and Discussion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Appendix A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
3 The Impact of Sea Level Rise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
3.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
3.2 Model and Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
3.3 A Group Reduce Emissions Scheme Setting. . . . . . . . . . . . . . . . . . 47

vii
viii Contents

3.4 Result . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
3.4.1 The Temperature . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
3.4.2 The Sea Level . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
3.4.3 The Economic Loss of Sea Level Rise . . . . . . . . . . . . . . . . 50
3.5 The Flood Area in China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
3.6 Discussion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
4 EMRICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
4.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
4.2 Analysis Framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
4.2.1 The Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
4.2.2 The Situation of Global Carbon Mitigation . . . . . . . . . . . . . 61
4.2.3 Global Mitigation Principles . . . . . . . . . . . . . . . . . . . . . . . . 62
4.3 The Game Design and Simulation . . . . . . . . . . . . . . . . . . . . . . . . . 62
4.3.1 Welfare . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
4.3.2 The Mitigation Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
4.3.3 The Solution of the Nash Equilibrium. . . . . . . . . . . . . . . . . 64
4.3.4 The Mitigation Scheme . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
4.4 Sensitivity Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
4.4.1 The Nash Equilibrium . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
4.4.2 The Pareto Principle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
4.5 The Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
5 The Analysis for Synergistic Effect of Policy of Environmental
Tax with Dynamic CGE in China . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
5.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
5.2 Model and Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
5.2.1 CGE Dynamic Mechanism . . . . . . . . . . . . . . . . . . . . . . . . . 75
5.2.2 Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
5.3 Results Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
5.3.1 Baseline Scenario . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
5.3.2 Sulfur Tax Scenario . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
5.3.3 Carbon Tax Scenario. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
5.3.4 Sulfur Tax and Carbon Tax Scenario . . . . . . . . . . . . . . . . . 84
5.4 Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
6 CIECIA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
6.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
6.2 Model and Data Sources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
6.2.1 Economic Module . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
6.2.2 Climate Module . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
Contents ix

6.2.3 Technological Progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95

6.2.4 Data Sources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
6.3 Calibration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
6.4 Assessments of Global Cooperating Abatement Schemes . . . . . . . . 99
6.4.1 The Non-Abatement Scheme . . . . . . . . . . . . . . . . . . . . . . . . 101
6.4.2 Stern Scheme . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103
6.4.3 Norhaus Scheme . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105
6.4.4 Principle of Convergence on Carbon Emissions
Per Capita . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108
6.4.5 Principle of Convergence on Accumulated Carbon
Emissions Per Capita . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111
6.4.6 Global Economic Growth Scheme . . . . . . . . . . . . . . . . . . . 117
6.4.7 Pareto Improvement Scheme . . . . . . . . . . . . . . . . . . . . . . . . 119
6.5 Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124
Appendix A. Main Parameters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125
Appendix B. Changes of Industrial Structure of Countries . . . . . . . . . . . 127
Appendix C. A New Pareto Improvement Scheme . . . . . . . . . . . . . . . . . 130
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133
7 Carbon Emission Governance Under Global Carbon Taxes . . . . . . . 137
7.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137
7.2 Model and Data Sources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139
7.2.1 Production Module . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139
7.2.2 Knowledge Capital and Process Technological
Progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141
7.2.3 Carbon Emission Accounting and Carbon
Tax levy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 142
7.2.4 Carbon Tax Revenue Distribution . . . . . . . . . . . . . . . . . . . . 145
7.2.5 Data Sources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147
7.3 Simulations of Different Carbon Tax Rates . . . . . . . . . . . . . . . . . . 147
7.4 Simulations of Different Distribution Modes of Carbon
Tax Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153
7.5 Impacts of Technological Progress Strategy in Carbon
Tax Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157
7.6 Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 160
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 161
8 Global Climate Ethics: A View Based on Chinese Philosophy . . . . . . 165
8.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165
8.2 The Significance of the Climate Ethics . . . . . . . . . . . . . . . . . . . . . . 166
8.2.1 A New Perspective of Climate Ethics . . . . . . . . . . . . . . . . . 168
x Contents

8.3 Basic Issues of Climate Ethics . . . . . . . . . . . . . . . . . . . . . . . . . . . . 171

8.3.1 The Equity Principle of Climate Ethics . . . . . . . . . . . . . . . . 171
8.3.2 Justice and Responsibility . . . . . . . . . . . . . . . . . . . . . . . . . . 173
8.4 Justice of the Climate Negotiations. . . . . . . . . . . . . . . . . . . . . . . . . 178
8.5 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 179
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 180
Chapter 1
Introduction

1.1 Integrated Assessment Model of Climate Change

and Economy

Integrated Assessment Model of Climate Change, short for IAM, consider various
factors fully and comprehensively such as climate, economy and energy use at a
global level, its application value and potential have been widely recognized.
A large number of literature attempts to explain “Integrated Assessment (IA)”,
including Weyant et al. (1996). Rotmans et al. (1990)’s definition of IA is widely
quoted, IA is a process of combining, interpreting, connecting knowledge from
different scientific disciplines; In this process, all causal connection of the problem
can be comprehensive evaluated from two aspects: compared with single discipline
evaluation, research results of IA have value increment and provide useful infor-
mation for decision makers. Therefore, IA is about global issues such as climate
change, information sharing process repeatedly contacting knowledge (science) and
action (policy). Weyant et al. (1996) defines the three goals of the IA: assessment of
climate change control policy; unify multiple dimensions of climate change to the
same framework; quantify the relative importance of climate change in other human
facing environmental and non-environmental fields.
The definitions of IAM in academic are not unified, Weyant et al. (1996) defined
IAM as model of any using multidisciplinary research knowledge; Schneider
(1997) argued that IAM usually contains a series of sub models from other areas,
and is used in the integrated assessment of environmental science, technology and
policy issues; Kelly and Kolstad (1999) defined that IAM combing the natural
sciences and economics in climate change issue, to evaluate policy options under
climate change; Tol (2002) argued that IAM is a multidisciplinary cross model
including any physics, chemistry, ecology, economics and politics together;

© Springer Nature Singapore Pte Ltd. 2017 1

Z. Wang et al., Integrated Assessment Models
of Climate Change Economics, DOI 10.1007/978-981-10-3945-4_1
2 1 Introduction

Ackerman et al. (2009) argued that IAM a multi-disciplinary calculation model to

study climate change, to assess profit and loss of climate policy using the GCM
results. Above all, IAM is multidisciplinary cross large-scale model combined
climate model with economic model, for the purpose of studying the climate issue
and evaluate climate policy.
Due to IAM has good decision support function, there is a mistaken under-
standing considering IAM as policy instrument. This is because that IA is not to
provide help for government decision-making, but built for solving the problems of
the real world, usually, these problems are from multiple multi-disciplinary cross to
inter-disciplinary integration development (Schneider 1997). IA is an analysis
model about the objective reality with the characteristic of physics and analysis
model with economic purpose. IA is not to make decision, but the objective and
logical estimation.

1.2 The Classification of IAM

IAM can be divided into different categories. The classification of different scholars
is on different starting points. This classification can help us to better understand
and compare the differences of IAMs, and identify their function. van Vuuren et al.
(2011) thought some IAMs more focused on the economy, such as the integration
of multi-sectoral computable general equilibrium model with climate module, these
models focus on cost-benefit analysis; Other IAMs mainly focused on the inte-
gration of physical process of natural systems and economics (integrated model
structure or biophysical effects model), this classification distinguishes IAMs
according to the carbon cycle and the description of the temperature change.
In fact the simplicity degree of the carbon cycle and climate systems depends on
modeling purpose. For these IAMs who focus on cost-benefit analysis, taking
DICE, FUND and MERGE for example, the carbon cycle and climate system have
been simplified a lot compared to GCM. The amount of atmospheric carbon dioxide
is a function of carbon emissions, and the other greenhouse gas emissions are a
fixed invariants. Concentration is directly used to calculate the radiation pressure.
Equilibrium temperature changes with the change of the radiation pressure. While
the IAMS focused on physical process model pay attention to the climate and the
expression of carbon cycle in more detail. Many IAMs use the energy balance
model of the bottom-up model with a global carbon cycle model to describe the
global climate change and greenhouse gases, such as MAGICC. In addition, there
are also using the grid size parameters to drive the agricultural growth model of grid
level. There are other IAMs that introduced the terrestrial carbon sink, carbon
source on the grid scale, to obtain the more complex relationship of the climate, the
carbon cycle, land cover and land use change, such as IMAGE (Bouwman et al.
2006).
1.2 The Classification of IAM 3

Goodess et al. (2003) divided IAM into three categories, IAM based on
cost-benefit analysis; IAM based on biophysical and IAM based on policy
guidance.
(1) Cost-benefit analysis IAM for policy optimization, such as CETA, DICE,
FUND, ICAM-3, MERGE, and the MiniCAM. These models firstly care about
the economic consequences of climate change, such as comparing costs for
climate change adaption and emissions reduction to assess possible alternative
policies. In these models, climate modules are under 2 dimensions, some even
are 0 dimension. The calculating of these models is short time-consuming, no
more than a few hours. As a result, they can be used to rapidly evaluate
emissions reduction agreement, such as Kyoto Protocol.
(2) Biophysical-impact based IAM for policy evaluation, such as CLIMPACTS,
ESCAPE, IMAGE and IGSM. These models are more focused on quantitative
evaluation of the biophysical rather than economic policy evaluation. They tend
to be analyze at the regional level, some analysis can also be integrated into the
global level. The advantage of these models is to analyze the impact of climate
change on the high spatial resolution. But the disadvantage of these models is
that the economic module is relatively weak. These model cannot build the
economic relations on the corresponding spatial resolution. Economic module
often contains only GDP, population and energy use.
(3) Policy guidance IAM, such as ICLIPS. It transfers economic losses (plants,
agriculture, water resources) module through climate impact response function
into tolerable windows. Tolerable window is generally expressed by the rise of
temperature, rainfall and sea level rise level (Fussel et al. 2003). These
restrictions are input into greenhouse gas emissions-climate change module to
calculate carbon emissions that can keep consistent with tolerate window
Bruckner et al. (2003). This model can be used to calculate the threshold value
of climate change.
According to model methodology, Yang (2008) divided IA model of climate
change into three categories: a computable general equilibrium model,
inter-temporal optimization model, and simulation model.
(1) computable general equilibrium model, such as EPPA model of MIT and SGM
model from the Pacific northwest laboratory. CGE models usually use social
accounting matrix (SAM) as database to establish the model. It can divide
departments and regions in detail, and study the regional economic relations of
inter-departments and inter-regions. CGE can provide very useful information
when studying future GHG and evaluation strategy of GHG reductions,
Modelers can set up a specific structure or module in CGE for the analysis of
economic problems. A disadvantage of CGE is that its dynamic characteristic is
limited due to the limitation of data. Usually CGE is static or dynamic recur-
sion. At present, there is no CGE model of “visionary” (Yang 2008).
(2) the inter-temporal optimal model, such as RICE from Yale and MERGE.
Dynamic or inter-temporal optimization model currently are not elaborate to the
4 1 Introduction

department level. But compared to the CGE model, it has better flexibility in
depicting individual decision-making and response to the future events. it is
more reasonable than the mechanism of CGE on the inter-temporal optimiza-
tion. In addition, its dynamic structure is more transparent than CGE.
(3) the simulation model, such as ICAM model of Carnegie Mellon university and
IMAGE model from the Netherlands national institute of public health.
Scenario simulation model does not need to spend time to find the optimal
solution. The entire model is without any decision-making or individual eco-
nomic optimization behavior. Modeling structure also often take the bottom-up
model. Also, the model often lack of connection between economic depart-
ments. Economic modules are not usually present in the framework of general
equilibrium.
Van Vuuren (2006) divided IAM into three categories: multi-sector general
equilibrium model, aggregate general equilibrium model; integrated structure
model. His classification is similar to Yang’s.
(1) Multi-sector general equilibrium, such as AMIGA, EU-PACE, EPPA, SGM,
WIAGEM.
(2) Aggregate general equilibrium, such as MERGE, GRAPE.
(3) Integrated structural model, such as IMAGE, MESSAGE, AIM, MiniCAM.
According to the coupling tightness between economic module and climate
module, Bahn et al. (2006) divided IAM into two kinds, one kind is economy,
climate and damage module highly merging model, such as RICE, DICE, and
MERGE. This kind of model usually takes a long time to find the optimal emissions
reduction policy. The other type is IGSM model. Economic system adopts multiple
regional general equilibrium model, the climate system adopted high resolution
general climate system. But system between the economy and climate subsystem is
too simple. The economic system only does damage assessment based on tem-
perature rise, but the development of the economic system itself is not affected
(Bahn et al. 2006).
If we continue to thinking in depth following Bahn’s opinion, it can be found
that currently these classifications ignored a very important point-the influence of
climate change on the economic development path.
In economic growth theory, economic growth path draws lots of attention,
especially for what factors can affect economic growth. Lucas (2002) pointed out
that capital, labor, and technology is the root cause of economic growth, and labor
force growth, technological progress is the source of the economic growth.
However, climate change has caused negative effects on the economy, actually have
affected economic development path. The global climate change bring about eco-
nomic losses at the first phase, such losses will also affect the investment at the next
phase, thus affect the amount of capital in the production function. Nordhaus (2008)
took CO2 as a new factor in the production function, like capital, is a kind of inputs,
1.2 The Classification of IAM 5

but this factor’s influence on economic growth is negative. Therefore, whether

brings loss of climate change into economic growth process, determines whether a
model recognizes climate change’s effect economy development. In fact, almost all
of the models considered the economic consequences of the temperature rise. But
not all models will make the response of economic loss on the of the economy’s
trajectory. If according to whether IAM model considering the impact of climate
change on economic growth path. Models can be roughly divided into two cate-
gories. Models considering the effects of climate change on economic growth path
are RICE, DICE, MERGE, WITCH on behalf of the optimization. The mechanism
of the model is simple, the physical module is inferior to IMAGE, the economic
module is inferior to CGE model, and WIAGEM. But they build the impact of
climate change into the economic development module, perhaps this is the charm of
DICE/RICE can constantly get developed and attention.
Table 1.1 shows the statistics of some international IAM. Temperature feedback
on economic system is an important indicator, it reflects the model’s ability to carry
the impact of climate change internalized to the economic development path. On the
issue of climate change, the biggest advantage of CGE is to set emissions reduction
measures at the department level, and can reflect the influence on the various
departments under emission reduction measures. GREEN and G-CUBED model, as
an early energy environmental CGE model, introduced the calculation of carbon
emissions. But there is no climate module. It can be used to calculate the influence
of carbon tax and carbon trade on emission reductions. CGE models such as FUND
and Wiagem brought damage function of temperature rise, but did not introduce
temperature factors in the production function (Kemfert 2002). FUND model,
although the loss can be divided into 15 kinds of types, but only shows the tem-
perature rising losses, instead of a given temperature on the influence of the pro-
duction. The defects of RICE model are obvious, although many other models
extended RICE including the economy module and the climate modules, often lost
its most essential thing, which is the impact of climate change on economic growth.
The lack of close relationship of temperature and economy is really a pity.
Stanton et al. (2009) divided IAMs into two categories: (1) the inter-temporal
optimization model, this kind of model based on the principle of global or regional
welfare maximum or minimum cost to get the optimal path of the future, the
so-called “optimal” is the best hypothesis for the future the model can make and
future state of the world modelers expected. (2) the simulation model, also known
as the assessment model, this model is to evaluate different policies, not make
assumptions or to seek the optimal in the future. These two kinds of model is
nonlinear, need a lot of exogenous variables to express the economic and natural
system in the model.
Due large categories of IAM, each has its own characteristics. some defects of
one type of IAM, may cease to exist in another type of IAM (many IAM model can
be regarded to be complementary on the function, can’t simply say one model is
better than the other one). In addition, an obvious characteristic is that more
transparent model mechanism is, more vulnerable to criticism, such as RICE,
 6

Table 1.1 Primary IAM model

Name Global/regional National economic Inter-regional Interdepartmental Optimal/simulation Loss Temperature
level/sectoral economic level economic connection evaluation feedback on
association of the economic
temperature system
rise
AIM Aisa-Pacific National economic level, – N Simulation Y N
considering the energy supply
and demand balance
IMAGE Global 5 sectors N N Simulation Y N
MESSAGE Global National economic level/ N – Optimal Y N
MARIA Global National economic level, Y N Optimal Y Y
considering the energy supply
and demand balance
MiniCAM Global National economic level, N N Simulation Y Y
considering the energy supply
and demand balance,
Agricultural supply and
demand balance
RICE Global National economic level/ N – Optimal Y Y
MRICES Global National economic level/ Y – Both Y Y
MERGE Global National economic level/ N – Optimal Y Y
WITCH Global National economic level/ N – Optimal Y Y
FUND Global Sectoral economic level Y Y Simulation Y N
GREEN Global Sectoral economic level Y Y Simulation N N
1

G-CUBED Global Sectoral economic level Y Y Optimal N N

WIAGEM Global Sectoral economic level Y Y Simulation Y N
Introduction
1.2 The Classification of IAM 7

MERGE. However, criticism is beneficial, it always provide directions for the

model’s development.
Goodess et al. (2003) pointed out that because IAM need to integrate different
disciplines’ content, so that may complicate the model. In order to simplify the
process, a lot of IAM used several relatively simple equations to depict the cor-
responding mechanism, which is more noticeable in the climate system and the
carbon cycle system, some IAM models with a few of equations to describe the
climate system (Goodess et al. 2003). In fact, the IAMs he described is mainly
focused on cost-benefit analysis of optimization model and some CGE model, such
as RICE, DICE, MERGE, FUND, Wiagem. Influenced by algorithm, for the CGE,
its climate module is simple, the relationship between radiation force and temper-
ature is linear equation. This is subject to linear characteristics of CGE calculation
equations. Due to the inability of using linear function to represent large dynamic
climate models, the climate module of CGE could not be too complicated. For
optimization model, when the climate module is too complex, it will cost a lot of
computation time, even can not get the solution. However, there are some attempts
to change this situation, a new algorithm OBOT (oracle based optimization tech-
nique) has made some breakthrough, firstly it decomposes IAM into two sub
modules, climate and economic module, and then uses the database interaction
search technology of the two sub-modules to complete the optimal path of the
search (Bahn et al. 2006). This technology can extend climate module of RICE
model in more detail, at the same time keep the important features of RICE, the
original economic and climate module combined closely. A possible foresight is
that the technology can expand RICE economy module for more specific CGE
module. That may now face two difficulties, first, because the CGE has yet to
include climate change factors into the production function; second, searching for
the optimal strategy on department level will increase huge calculation amount.

1.3 IAM Modeling Principle

DICE model and RICE model are the most typical ones among various IAM
models. We can understand the modeling principle of IAM easily through the
understanding of them.
DICE model is the abbreviation of Dynamic Integrated model of Climate and
Economy and RICE model is the abbreviation of Regional Integrated model of
Climate an Economy, which is based on the development of DICE model. DICE
model/RICE model are modeled and developed by some climate economist, leading
by William Nordhaus, in Yale University. They established a series of economi-
cally dynamic process model, including DICE model (Nordhaus 1992), DICE-2007
model (Nordhaus 2007), RICE model (Nordhaus and Yang 1996), RICE-99 model
(Nordhaus and Boyer 2000), RICE-2007 model (Nordhaus 2008) and so on.
DICE model published in 1992, a prototype of the work of Nordhaus in 1979
(Nordhaus 1992, 1994). DICE model integrates a general equilibrium model of
8 1 Introduction

global economy and a climate system that includes greenhouse gas emissions,
carbon dioxide concentration, climate change, climate change impact and optimal
policy. Therefore, DICE model is the IAM for optimizing policy (also known as
welfare maximization model), whose behaviors of saving and investment are based
on Ramsey model, and are developed by using GAM platform. The world is
regarded as a whole in DICE model and countries and regions aren’t distinguished.
Comparing other IAM models during the same period, whose spatial scale can be
reduced to regions even grids, such as FUND, AIM, IMAGE and so on, DICE
model has a larger spatial scale. DICE model is more focused on the quantitative
impact of climate change on economy and analysis of gains and losses in world
economy owing to the implementation of climate protection policy (Goodess et al.
2003).
DICE model directly obtains the economic cost of climate change from the
equation of climate damage (Goodess et al. 2003), in which the reaction of
economies to climate change can be shown by investment change. The core of
DICE model is policy instruments to control greenhouse gas emissions rate, which
is a reduction ratio of global greenhouse gas emissions controlled by reduction rate
to baseline scenario.
The climate system in DICE model is relatively simple comparing to other IAM
of using GCM directly, for example FUND. It is a Simple Climate Mode (SCM) of
Box-Advection Model and calculates annual average global temperature change
with an interval of 10 years from 1965 to 2105. Meanwhile, DICE model uses
computational results from annual average global temperature from 1862 and 1989
(Jones et al. 1990) and three GCM models (Schneider and Thompson 1981;
Stouffer 1989; Schlesinger and Jiang 1990) to calibrate the computational results
from simulation of climate model. In the processing of uncertainty, DICE model
uses Monte Carlo, a way of random distribution dealing with uncertainty of
parameters and adopts different climate sensitivity.
RICE model is modeled by Nordhaus and Yang 1996. Compared to DICE
model, the biggest feature of RICE model is dividing the world into six regions that
are China, the United States, Europe, Japan, the former Soviet Union and the rest
parts of the world. The structure of equations in RICE model is basically consistent
with DICE model and is developed by GAMS platform. From this perspective,
earlier RICE model is equivalent to a multi-regional version of DICE model. RICE
model uses the way of changing the intercept of fitting parameters to estimate
different mitigation costs of each region, which are distinguished with DICE model.
From the calculation results, RICE model gets much higher results than DICE
model about world outputs and greenhouse gas emissions in the end of 21 century.
Nordhaus and Boyer (2000) developed a new version of the RICE model,
namely RICE-99 model. RICE-99 model adopts a different modelling method with
earlier version, in which the structure of model and control variables are changed
and the model is depicted more sophisticated. In addition, RICE-99 model is
developed by programming in EXCEL rather than in GAMS platform. The main
differences between RICE-99 model and RICE model are: First, RICE-99 adopts a
1.3 IAM Modeling Principle 9

more complicated Cobb-Douglas production function (CD function) with three

factors: capital, labor and energy, while DICE model and RICE model use CD
function with two factors: capital and labor. RICE-99 model changes production
relations of the whole model, namely that economic growth is a function of energy
use, which means that the effect of reduction emissions is considered more in
industrial processes. Secondly, energy supply is combined with fossil fuel con-
sumption and the consumption of energy is decided by the market. Thirdly,
RICE-99 model adopts a three-layer carbon cycle model, including atmospheric
carbon flow, shallow and deep marine biosphere to replace a single system in
original RICE model but still retain the original temperature dynamic mode. Fourth,
RICE-99 model changes the impact of climate change on economy, making the
global impact of climate change derive from regional impact.
Nordhaus and Boyer (2000) developed a new version of the RICE model,
namely RICE-99 model. RICE-99 model adopts a different modelling method with
earlier version, in which the structure of model and control variables are changed
and the model is depicted more sophisticated. In addition, RICE-99 model is
developed by programming in EXCEL rather than in GAMS platform. The main
differences between RICE-99 model and RICE model are: First, RICE-99 adopts a
more complicated Cobb-Douglas production function (CD function) with three
factors: capital, labor and energy, while DICE model and RICE model use CD
function with two factors: capital and labor. RICE-99 model changes production
relations of the whole model, namely that economic growth is a function of energy
use, which means that the effect of reduction emissions is considered more in
industrial processes. Secondly, energy supply is combined with fossil fuel con-
sumption and the consumption of energy is decided by the market. Thirdly,
RICE-99 model adopts a three-layer carbon cycle model, including atmospheric
carbon flow, shallow and deep marine biosphere to replace a single system in
original RICE model but still retain the original temperature dynamic mode. Fourth,
RICE-99 model changes the impact of climate change on economy, making the
global impact of climate change derive from regional impact.
Nordhaus and Yang have begun to the development of the new version of RICE
model since 2002 and finally developed RICE-2007. Compared to previous ver-
sions, regional division of RICE-2007 is more detail, and the model has shorter
intervals and longer time span.
DICE model sees the world as an unity, thus it cannot make a distinction
between different national emission models and emission-cutting policies. In order
to analyze the role of national(regional) emission-cutting policies for the change of
global climate, Nordhaus and Yang (1996) developed 6 national(regional) RICE
(Regional Integrated model of Climate and the Economy) model. Hereafter, the
model is extended in 8 national(regional), 12 national(regional) RICE models.
From the perspective of the structure of model’s equation, RICE is very similar to
DICE. The primary distinction of both models is that the estimation of parameters
are put into the regional levels, when RICE describes national(regional) economic
behaviors and climate change. In other words, in RICE model, nations(regions)
10 1 Introduction

have independent economic behaviors and climate change exerts different effects on
nations, but the change of global climate system’s status is shared by nations. The
structure of model is as follows:
• Object function
In the DICE model, intertemporal maximization of social welfare model serves
as the objective function, as all consumer choice and emission-cutting policies are
in the direction of evolution that is conducive to the object. Through the expressive
method of optimal economic growth theory’s utility, intertemporal social welfare is
defined as the discounted value of per capita consumption, under the effect of
weight of population scale. Formula (1.1) is its computational equation.

max
TX
W¼ U ½cðtÞ; LðtÞ%RðtÞ ð1:1Þ
t¼1

where W is social welfare, c is per capita consumption, L is population, and R is the

rate of discounted value. Further, U½% can be defined as:
h i
U ½cðtÞ; LðtÞ% ¼ LðtÞ cðtÞ1&a =ð1 & aÞ ð1:2Þ

where a is constant elasticity of the marginal utility of consumption, which

describes alternative between different generations. When the value of a is zero,
consumptions between different generations can be replaced on a large measure;
when a is larger, consumptions between different generations aren’t increasingly
replaced. In addition, the discounted value R in formula (1.1) can be estimated by
formulated (1.3).

RðtÞ ¼ ð1 þ qÞ&t ð1:3Þ

where q is the preference of social time, which gives different weights to different
generations by formula (1.3). When determining value of q is smaller, the future
utility is more important; when the value of q is zero, utilities between different
generations have identical importance. With reference to the issue of value of
discounted value, it is the front-burner issue of present climate protection mod-
elling. In its essence, determining value of q involves the issue of climate protection
ethics, as is the same as the issue that whether future person’s consumptions are as
important as present person’s consumptions, debated by Nordhaus and Stern.
Nordhaus (2007) advocated that the value of q should be determined with 0.015 by
the estimation of practical experience, while Stern, holding the contradictive view
that the future consumption is as important as present consumption. argued the
value of q should be 0.001. The value is very close to zero, which lets future utility
fully be discounted, thus the estimation of impact of climate change on future
welfare may be over-estimated.
1.3 IAM Modeling Principle 11

However, the objective functions of RICE model and DICE model are a little
different, which can be seen in (1.1’)

max X
TX N h i
W¼ wI;t U ðiÞ C ðiÞ ðtÞ; LðiÞ ðtÞ RðiÞ ðtÞ ð1:1’Þ
t¼1 i¼1

Where, wI;t denotes the weights of countries or regions. In other words, the
objective function of RICE is the sum of countries’ or regions’ utilities which is
calculated by weights. The advantage of this objective function is that more sce-
narios can be considered by adjusting the weights.
• Economic System
DICE/RICE model has the same production function as (1.4), which adopts the
C-D production function with the feature of constant returns to scale.
.
QðtÞ ¼ ½1 & KðtÞ%AðtÞKðtÞc LðtÞ1&c ½1 þ XðtÞ% ð1:4Þ

Where, QðtÞ is the net output, AðtÞ is the total factor productivity, KðtÞ is the
capital, capital is accumulated by the perpetual inventory method, satisfying:

KðtÞ ¼ IðtÞ þ ð1&dK ÞK ðt & 1Þ ð1:5Þ

Where, IðtÞ is investment, dK is the discount rate; Labor force grows at a rate
decreasing gradually. In addition, XðtÞ and KðtÞ is the economic loss rate caused by
climate change and the abatement cost ratio, satisfying:

XðtÞ ¼ 1=fw1 TAT ðtÞ þ w2 ½TAT ðtÞ%2 g ð1:6Þ

KðtÞ ¼ WðtÞh1 ðtÞlðtÞh2 ð1:7Þ

Where TAT represents the temperature rise, which is written as T for short; lðtÞ is
the abatement rate, w1 , w2 , h1 , h2 , WðtÞ are the parameters. Nordhuas sets

XðtÞ ¼ 1=ð1 þ D½TðtÞ=3%2 Þ ð1:8Þ

And according to experience data, we set D ¼ 0:0133

KðtÞ ¼ b1 lðtÞb2 ¼ 0:0686lðtÞ2:887 ð1:9Þ

X ¼ ½1 & b1 lðtÞb2 %=½1 þ dðtÞ% ¼ ½1 & 0:0686lðtÞ2:887 %=½1 þ 0:00144TðtÞ2 % ð1:10Þ

In fact, the model is equivalent to modifying the total factor productivity:

12 1 Introduction

A( ¼ A=½1 þ DðTðtÞ2 =9Þ% ð(Þ

Function (*) has the obvious economics significance. A( , represents the climate
change influenced the total factor productivity loss of output, and it is called the
effective productivity. If further consideration reduction activity, let

A( ¼ Að1 & Kðt; lÞÞ=½1 þ DðTðtÞ2 =9Þ% ð((Þ

Furthermore, Nordhaus and Yang (1996) considered the total output productivity
Ai is different across countries. Thus,

ln Ai ðtÞ ¼ ln Ai ðt & 1Þ þ ci;a expð&di;a tÞ þ ri;a et ð1:11Þ

Where ci;a ,di;a ,ra are parameters. And et is the standard Independent identically
distributed random disturbance on the other hand, the output is used for con-
sumption Ci ðtÞ and investment Ii ðtÞ.

Qi ðtÞ ¼ Ci ðtÞ þ Ii ðtÞ ð1:12Þ

In DICE/RICE model, economic output yields the carbon emission. Industrial

carbon emission EInd is calculated by the economic output and the intensity of
carbon emission.

Eiind ðtÞ ¼ ri ðtÞ½1 & li ðtÞ%Ai ðtÞKic ðtÞL1&k

i ðtÞ ð1:13Þ

The ith country’s carbon emission intensity is exogenous. The accumulated

carbon emission caused by fossil fuel is constrained by

Tmax
X
CCum ) EiInd ðtÞ ð1:14Þ
t¼1

Besides the industrial carbon emission, the change of land use is also an
important carbon emission source. It is estimated that land use change can cause
nearly 1.5 GtC carbon emission. Thus, the total carbon emission E ðtÞ is the sum of
the industrial emission E Ind ðtÞ and the emission of land use change ELand ðtÞ.

E ðtÞ ¼ E Ind ðtÞ þ ELand ðtÞ ð1:15Þ

Where, the emission of land use change ELand ðtÞ is exogenous.

• the geophysical system
Carbon emissions from economic activity will affect the land, ocean and the
atmospheric carbon concentration, leading to global radiation force change, finally
1.3 IAM Modeling Principle 13

result in global warming. DICE/RICE model links the geophysical system and
economic activity as follow:

MAT ðtÞ ¼ E ðtÞ þ /11 MAT ðt & 1Þ þ /21 MUP ðt & 1Þ ð1:16Þ

MUP ðtÞ ¼ /12 MAT ðt & 1Þ þ /22 MUP ðt & 1Þ þ /32 MLO ðt & 1Þ ð1:17Þ

MLO ðtÞ ¼ /23 MUP ðt & 1Þ þ /33 ðt & 1Þ ð1:18Þ

Where, MAT ðtÞ is the atmospheric carbon inventory MUP ðtÞ is the up ocean and
biology cycle carbon inventory and MLO ðtÞ is carbon inventory of deep ocean. /ij
represents the carbon transforming coefficients. Thus the global radiation force level
FðtÞ:

FðtÞ ¼ gflog2 ½MAT ðtÞ=MAT ð1750Þ%g þ FEX ðtÞ ð1:19Þ

Where MAT ð1750Þ represents the carbon concentration before year 1750.
Because DICE/RICE model is mainly used for assess the carbon emission effect,
other greenhouse gases such as methane effect of nitrous oxide, etc. are not
included. And they are denoted as FEX ðtÞ in the model:

TAT ðtÞ ¼ TAT ðt & 1Þ þ n1 fFðtÞ & n2 TAT ðt & 1Þ & n3 ½TAT ðt & 1Þ & TLO ðt & 1Þ%g
ð1:20Þ

TLO ðtÞ ¼ TLO ðt & 1Þ þ n4 fTAT ðt & 1Þ & TLO ðt & 1Þg ð1:21Þ

Where TAT ðtÞ is the earth surface temperature, TLO ðtÞ is the deep ocean
temperature.

1.4 Global Carbon Cycle Model

Since the DICE/RICE model was developed, not only Nordhaus the first person
proposed this model continue to improve this model, have launched a new version
of the model, and other scholars based on the DICE/RICE have made a lot of
improvements.
For example, Bosetti et al. (2006) introduced the endogenous technological
progress caused by the interaction between R & D investment and learning by
doing into the model; Wang et al. (2010) based on the DICE/RICE model built a
China-US climate protection model including GDP spillover mechanism; Zwaan
et al. (2002) developed the DEMETER model based on the DICE/RICE model by
introducing learning by doing mechanism within the energy system; Popp (2004a,
b) also developed the ENTICE model based on the DICE/RICE model; But the
14 1 Introduction

improvement of the scholars, mainly concentrated in the economic system, there is

little of the model of the earth’s physical system.
In theory, we can achieve a detailed description of the atmospheric motion
process through the thermodynamics and fluid mechanics equations in the GCM
model, which is one of the ideal methods to establish the model of climate pro-
tection. However, because the GCM model involves thousands of equations, it is
not well integrated into the policy optimization model of climate protection.
Instead, the approach is based on the assumption that the global carbon cycle is
characterized by a much simpler model of the earth’s physical system, combined
with the modeling of climate protection.
At present, the simplified carbon cycle models can be divided into two types:
one is the whole model or the zero dimensional model, such models describe the
global carbon cycle as a whole by describing the carbon cycle of the atmosphere,
the earth’s biosphere, the soil, the oceans, and so on; the second model is the spatial
distribution model and the model based on geo spatial distribution as the back-
ground, taking into account the different regions with different geographical con-
ditions, vegetation type, soil type factors, which constitute the refinement of the
global carbon cycle, and then analyze the effect of different regions in the global
climate change by the difference. By comparison, the former model is easy to
implement, and the latter puts forward higher requirements to the model data, which
is difficult to achieve.
Now, we will introduce a zero dimensional model of the earth physics system,
which can be integrated with the DICE/RICE model well.
• The climate model:
Let TðtÞ be the global surface temperature.

dTðtÞ CðtÞ
¼ l ln & aTðtÞ ð1:22Þ
dt C0

Where CðtÞ is the total amount of carbon in the atmosphere, C0 is the carbon
content in the atmosphere before industrialization, l and a are the model param-
eters, which are 0.17 and 0.034, there is the function relationship between surface
temperature and atmospheric carbon content and the temperature change.
• Terrestrial carbon cycle
Terrestrial carbon is shared between two compartments: biota (vegetation) and
pedosphere (soils). Let us denote NðtÞ as the amount of carbon in vegetation.

dNðtÞ
¼ PðC; N; TÞ & mðtÞNðtÞ ð1:23Þ
dt

Where PðC; N; TÞ is the annual productivity or the net primary, measured in

Gt/yr. mðtÞ is the carbon escape rate in vegetation.
1.4 Global Carbon Cycle Model 15

PðC; TÞ ¼ P0 ð1 þ a1 TÞð1 þ a2 ðC & C0 ÞÞ ð1:24Þ

Where P0 is the pre-industrial value of NPP.

mðtÞ is defined as:

1
mðtÞ ¼ ð1:25Þ
sB ðtÞ

Where sB ðtÞ is the residence time of carbon in vegetation. That is to say, the
escape rate of vegetation carbon is inversely proportional to its retention time.
Carbon escape from the vegetation is divided into long-term and short-term
retention of two types; the former will be converted to soil carbon, which will be
released in the form of carbon dioxide into the atmosphere.
We suggest that e indicates that the proportion of the long-term carbon emission
from the biomass, and therefore the proportion of short-term carbon is 1&e. Finally,
the dynamics for the amount of carbon in soils is written as:

dSðtÞ
¼ emðtÞNðtÞ & dðTÞSðtÞ ð1:26Þ
dt

dðTÞ is the decomposition rate of soil carbon. In addition to the amount of soil
carbon changes in the amount of carbon released from the vegetation, but also
through the degradation process to release some of the carbon.

dðTÞ ¼ d0 ð1 þ a3 TÞ ð1:27Þ

• Ocean carbon cycle

Each period, marine carbon content changes not only by marine influence on a
carbon concentration, and also affected by the atmospheric carbon levels, namely
the carbon in the atmosphere will be into the ocean circulation.

dDðtÞ
¼ Qoc ¼ r½ðCðtÞ & C0 Þ & mðDðtÞ & D0 Þ% ð1:28Þ
dt

Where r, n are the model parameters

• Atmosphere carbon cycle
Under the action of terrestrial carbon cycle and ocean carbon cycle, carbon
fluxes in the atmosphere is below.

dCðtÞ
¼ &PðC; TÞ þ ð1 & eÞmðtÞNðtÞ þ dðTÞSðtÞ & Qoc þ EðtÞ ð1:29Þ
dt

Where EðtÞ is the carbon emissions from human activities.

16 1 Introduction

Atmosphere carbon emission

Terrestrial carbon emission

Soil carbonsequestration
human activities
carbon emissions
Vegetation carbonsequestration

Ocean carbon emission

Fig. 1.1 Global carbon cycle

To sum up, the global carbon cycle model built by Svirezhev et al. (1999) is a
three layer zero dimensional model based on the atmosphere, land and ocean carbon
pool as the main body (Fig. 1.1).

1.5 Shortcomings

Although DICE, RICE series model continue to improve themselves in the

long-term of the development and application, there are still some problems. DICE
model has no regional division and takes the world as a whole. Therefore, there is
only one total utility function in the world. Thus the marginal utility of income in
this model can only be compared across periods and can not be compared among
regions. So it is unable to analyze the global or the regional climate adaptation
policies. The climate model of DICE model is relatively simple and its practicability
is limited. In addition, there is no point in taking the extreme climate events into
consideration in the global mean climate system. For this reason, the global damage
equation of extreme climate events needs to be constructed on the basis of the
regional extreme index. For example, DICE and CETA model of such a global
scale IAM cannot establish the global extreme or sudden climate events of the
damage equation (Goodess et al. 2003).
Although RICE model divides the world into a number of regions, there is no
economic link among the regions. And this is obviously unreasonable as the rela-
tionship among the current countries economy in the world are more and more close.
In addition, the RICE model does not take into account the endogenous progress of
technology and thus we cannot estimate the economic development of developing
countries to reduce the speed of energy use. Therefore, there is a big gap in the
1.5 Shortcomings 17

forecast of the world economic development and carbon emission trends, when
comparing with the real situation of the world economic development since 1996.
Limited to the characterization of the economic system, DICE model series
defines the energy intensity decline rate to simulate the decline in the use of energy
per unit of GDP in the process of economic development.
A shortage of popular DICE or RICE is that they are written by GAMS or
EXCEL. This affects the calculation speed or the technology accuracy.
A criticism of the general IAM is presented by Wang Zheng. Wang Zheng
believes that the economy of the various regions of the RICE is always related to
each other (Wang et al. 2009). Wang et al. adopt the method of Douven and Peeters
(1998). The RICE model was improved by adding the Mundell-Fleming model to
connect each region economically. However, the linear mechanism of
Mundell-Fleming model does not fully reflect the complexity of the world eco-
nomic integration. So, we can introduce complete mechanism to the RICE to
improve its lack of regional economic links. The introduction of the
Mundell-Fleming model in the RICE produce of MRICES (Wang et al. 2008).
Another criticism is that the economic system is relatively simple. Ackerman
et al. (2009) believed that IAM, represented by RICE and DICE, has two important
defects—the lack of considering the equilibrium of the market and the lack of no
internal biochemistry of DICE’s technological progress. In view of these two kinds
of situations, Wang and Wu et al. (2010) has been the introduced the Learning by
doing mechanism into the RICE to produce the MRICES. Wang and Gu (2016)
introduced the global market equilibrium mechanism into the MRICES to produce
the CIECIA. The narrative constitutes the main content of this book.
From the existing IAM model, climate change as a factor affecting economic
development is introduced into the production function based on the optimal
MERGE and RICE models. However, it still has some problems in economic
refinement, technological progress and regional economic relations. And large scale
integration evaluation model including CGE type model, such as ICAM, IMAGE,
FUND, WIAGEM, cannot incorporate the climate change factor into the economic
growth model. So, establishing a new IAM is imminent. This new IAM will starts
from the theory of economic growth, and fully considers the economic growth
model under the mode of climate change. Specifically, in the context of climate
change, the factors that affect economic growth are capital, labor, technology,
climate change, industrial structure, energy structure and so on. Climate change
factor refers to the carbon concentration of Nordhaus (2008) and temperature as a
“negative impact” of the natural capital affects the productivity.
The adjustment of industrial structure will also leads to the changes of energy
intensity, so the industrial structure will bring an impact on economic growth.
Moreover, for specific countries or regions, the implementation of emission
reduction programs to the industry is also a realistic problem. “In 2007, at the
conference of the United Nations, 13 session of the conference of the parties, the
Bali Action Plan (BAP) requires developing countries to take “measurable,
reporting and verification (MRV)” of the appropriate mitigation actions (NAMAs)
to reduce greenhouse gas emissions, which needs the capital and technology of
18 1 Introduction

MRV and the capacity building support in developed countries (Ott et al. 2008)”.
This requirement makes it an inevitable trend to study carbon emissions from the
industrial level.
Another problem is that the department reducing emission tasks can not be arbi-
trarily assigned and need to take into account the industrial balance. The input-output
theory Leon Leontief tells us there are complex staggered relationships among
industries. The change of output and input in one sector can be spread to many other
sectors. In order to show the industrial structure and the energy structure into the
models, it will also make a more detailed level of emission reduction plan for the future.
Usually, this means the new IAM model will maintain the mechanism of climate
impact on economic growth and extend to the CGE model. And then improving the
traditional dynamic CGE and increasing the mechanism to change the trend of
industrial structure evolution can assess the impact of industrial structure adjustment
on the economy and global climate. This book describes the MRICES-2014 to develop
such a balanced economy of IAM. Unfortunately, limited to China’s communications
conditions, this work only achieves in the Chinese economy.
In addition, there is a fundamental lack of IAM. It is not reasonable in ethics to
emphaze the global emission reduction benefit optimization or global welfare
maximum. Global emission reduction benefit optimization may mean that the
developed countries get more emission rigdue to advanced technology and finance,
capital advantage position and also mean that the opportunity of developing in the
developing countries is deprived. For this problem, Wang and Wu (2010) abandon
the global emission reduction benefits of the optimal target in their MRICES model
and horizontally compare to try to circumvent the ethical problems. Yang and
Sirianni (2010) proposed the non color changing principle and take it as a coor-
dination standard to solve this ethical problems.

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Chapter 2
MRICES

2.1 Introduction

Since the 1990s, climate change policy simulation has been developed in two
categories, the Integrated Assessment Models (IAM) and the Computable General
Equilibrium (CGE) model. The climate change IAM is recognized as a broad,
integrated model that analyzes scientific and socioeconomic aspects of climate
change primarily for the purpose of assessing policy options for climate change
control (Kelly and Kolstad 1999). IAM research includes the DICE and RICE
models established by Nordhaus (1991) and Nordhaus and Boyer (2000), respec-
tively; the FOUND model established by Link and Tol (2004); the MERGE model
established by Manne et al. (1995) and Manne and Richels (2004); and the TIAM
and ETSAP-TIAM models established by McGill (Loulou and Labriet 2007;
Loulou 2008). Models based on the IAM in China have also been developed by
Jiang and Hu (2002), Chen et al. (2004), Wang et al. (2002, 2004), among others.
For reference, CGE-based models of climate policy simulation have been devel-
oped by Dixon et al. (1982), the OECD (1992), Burniaux et al. (1992), Mckibbin
and Wilcoxen (1993), Nijkamp et al. (2005) and Bussolo et al. (2008).
In this chapter, we focused on an IAM-based model. The most representative
IAM-based models of climate change are the DICE (Dynamic Integrated model of
Climate and the Economy) and RICE (Regional Integrated model for Climate and
the Economy) model. In 1990, Nordhaus first presented the DICE model (Nordhaus
1990), which contains no regional disaggregation, so that policymakers cannot
implement region-specific policies. As an extension of DICE, RICE is a multire-
gional model that divides the world into six regions: the United States, China, the
European Union, Japan, the former Soviet Union and the rest of the world
(Nordhaus and Yang 1996). In 1999, a new version of RICE separated the world
into eight groups: the United States, other high income countries, OECD Europe,
Russia and Eastern Europe, middle income countries, lower-middle income coun-
tries and low income countries (Nordhaus and Boyer 2000). The more detailed a

© Springer Nature Singapore Pte Ltd. 2017 21

Z. Wang et al., Integrated Assessment Models
of Climate Change Economics, DOI 10.1007/978-981-10-3945-4_2
22 2 MRICES

region is modeled, the more accurate the results are produced for a specified
regional policy simulation. There are many multiregional models of climate policy,
including the 25-region WIAGEM model (Kemfert 2005), the 6-region ETC-RICE
model (Buonanno et al. 2003) and the 32-country POLES model, among others.
The DICE and RICE models as a paradigm for climate change modeling have been
undergoing continuous improvements; however, there are still rooms for further
modifications. In this study, we introduced multilateral GDP spillovers into the
IAM.
Although spillovers in climate change modeling have been studied for a long
time, most researches have focused on technological spillovers (Rao et al. 2006;
Golombek and Hoel 2003) and R&D spillovers (Buonanno et al. 2003) that would
affect mitigation technology. However, modern countries have become much closer
through trade and cooperation than they have been at any time in the past. GDP
growth causes international spillovers; i.e., GDP growth in one country may have a
positive or negative influence on other countries. For example, Luh and Shih (2006)
discovered that spillover contributed to GDP growth between Japan and Korea but
dampened Taiwan’s GDP growth between 1978 and 1992. In particular, the 2008
global financial crisis, which was initially triggered by the bursting of the U.S.
housing bubble, spread to all regions of the world, resulting in dire consequences
for global trade, investment and growth. With the 2008 financial crisis, India’s
2008–09 GDP growth decreased to approximately 7.1% from 9% annual growth
before (Jha 2009). Weeks (2009) reported that the 2008 global financial crisis
caused a fall in export earnings in Sierra Leone of approximately 15% in 2009
compared to 2008. Liu (2009) found that the impact of the global financial crisis on
China’s economy was sizeable; a 1% decline in economic growth in the US, the EU
and Japan is likely to result in a 0.73% decline in growth in China. International
economic interactions have become so strong and complex that no country can
remove itself from the global economy. Therefore, climate policies enacted in one
nation will have an indirect economic influence on other countries via trade.
GDP spillovers in climate change can no longer be neglected; however, the
number of researchers studying modeling of this issue is still small. Grubb et al.
(2002) have divided the international spillover from GHG emissions reductions on
developing countries into three aspects: spillovers from economic substitution,
spillovers from diffuse technological changes and political effects on developing
countries from the mitigation actions of industrialized countries. GDP spillovers
from the mitigation actions of developed countries will significantly contribute to
global emissions reduction (Grubb et al. 2002). Wang et al. (2010) combined the
Mundell-Fleming model with a climate change model to examine the GDP spillover
from climate policies between the United States and China. A crucial conclusion of
Wang et al. (2010) was that one country should consider the emissions mitigation
policies of other countries when enacting its own. Thus, the inclusion of GDP
spillovers in models against climate change is essential; otherwise, assessments on
climate policy are biased.
This study established the MRICES (Multi-regional integrated model of climate
and economy with GDP spillovers) model, which integrates multilateral GDP
2.1 Introduction 23

spillovers into climate change modeling. Furthermore, several global mitigation

strategies were assessed using the MRICES model to determine whether these
strategies are climatically effective and economically efficient.

2.2 Model Description

MRICES is a dynamic model that combines climate and economic factors. It

divides the world into six regions: the US, Japan, the European Union (EU), China,
the former Soviet Union (FSU) and the rest of the world (ROW). Each region has
its own economic system and shares the global climate system. The economic
system describes the economic activities of each region, and global emissions can
be determined on the basis of these activities. Global emissions will result in a
temperature change in the global climate system, and the increase in temperature
will then affect the economic system. The dynamic interaction between climate and
economic systems is illustrated in Fig. 2.1.

2.2.1 Economic System

Based on the partitioning of the world in MRICES, the global economic system is
also composed of six interdependent subsystems with identical modeling structures.
The specific equations in the economic system are described below.
a 1#a
Yi;t ¼ A"i;t Ki;t Li;t ð2:1Þ

Equation (2.1) describes the regional output based on the Cobb-Douglas pro-
duction function from capital, Ki;t and labor, Li;t ; i represents the number of the region,
and t represents the simulation time, A"i;t is a measure of exogenous productivity, and a
and 1 # a represent the elasticity of capital and labor, respectively. Changes in A"i;t
depend on the exogenous productivity, Ai;t , according to Eq. (2.2), which has been

Fig. 2.1 The relationship

between economic and
climate systems in MRICES
24 2 MRICES

adopted by Nordhaus and Yang (1996), Pizer (1999) and Eyckmans and Tulkens
(2003), and Ai;t grows with the annual decline in growth rate shown in Eq. (2.3).
!
1 # bi;1 li;p
A"i;t ¼ Ai;t ð2:2Þ
1 þ ðD0 =9ÞTi;t2
! " ! " ! "
ln Ai;t ¼ ln Ai;t#1 þ ci;a exp #di;a t þ ra ð2:3Þ

In these equations, li;p describes the emissions reduction rate from production
control, bi;1 is the parameter for emissions control, D0 is the fractional loss in
aggregate GDP from a 3 °C temperature increase, Ti;t is the average surface tem-
perature (in °C) relative to that before industrialization, ci;a is the initial growth rate
of productivity, di;a describes the annual decline in growth rate, and ra is the
standard error for random shock.
In Eq. (2.1), the capital stock Ki;t grows as
! "
Ki;t þ 1 þ Ki;t di;K þ Ii;t ; ð2:4Þ

where di;K is the capital depreciation rate, and Ii;t denotes the investment during the
corresponding period derived from

ðcsÞ ðf Þ ðnÞ ðf Þ ðnÞ

Ii;t ¼ gi Yi;t # gi;I # Ii;t # Ii;t þ Ii;t # Mi;t þ Mi;t Þ; ð2:5Þ

where gi is the annual rate of investment, gi;I is the proportion of climate protection
ðcsÞ
deducted from investment as a policy parameter, Ii;t is the investment in increasing
ðf Þ ðnÞ
carbon sinks, Ii;t and Ii;t are the investments in fossil and non-fossil fuel energy
ðf Þ ðnÞ
sources, respectively, and Mi;t and Mi;t are the maintenance costs of fossil and
non-fossil fuel energy sources, respectively. The sum of the terms in parentheses in
Eq. (2.5) is considered to be the cost of handling climate change. To determine the
annual investment, household consumption can be expressed as

ðcsÞ ðf Þ ðnÞ ðf Þ ðnÞ

Ci;t ¼ Yi;t # Ii;t # ð1 # gi;I ÞðIi;t # Ii;t þ Ii;t # Mi;t þ Mi;t Þ: ð2:6Þ

Equations (2.5) and (2.6) implicitly indicate that two emissions reduction
actions, carbon sinks and energy substitution need financial support. The source of
emissions reduction costs is different from that of van der Zwaan et al. (2002), in
which the cost for handling climate change is defined as part of output. In our
model, the cost of emissions reduction is partially derived from consumption, with a
rate of (1 # gi;I ) and partially derived from investment, with a rate gi;I . As a result,
actions against climate change influence the utility of each region, as shown by the
Ramsey function:
2.2 Model Description 25

ðCi;t =Li;t Þ1#si

n ðsÞ
X ðsÞ
Ui ðnÞ ¼ ð1 þ qi Þ#t Li;t ; ð2:7Þ
t¼1
1 # si

where Ui ðnÞ is the utility when take a control policy in region i, and q; s describes
the discount rate and risk aversion to consumption per capita across time.

2.2.2 Emissions Mitigation

As previously mentioned, the link between the economic and climate systems is the
global emissions level, which is the sum of the six regional emissions. It can be
determined from the following equations:
!
ðcÞ Ai;t
Ei;t ¼ ri;t ð1 # li;c ÞYi;t ð2:8Þ
A"i;t

and

6
X ðcÞ
Et ¼ Ei;t ; ð2:9Þ
i¼1

where Ei;t is the regional emissions level, li;c is the integrated reduction rate, Et is
the global emissions level, and ri;t is an exogenous trend in emissions per output,
which declines as

lnðri;t Þ ¼ lnðri;t#1 Þ # ci;r expð#di;r tÞ ð2:10Þ

where ci;r is the initial growth rate for the emissions trend, and di;r is the annual
decline in the growth rate.
For emission mitigation, there are three reduction measures considered in
MRICES model, including production controlling, energy substitution and carbon
sinks increasing. The gross emission reduction rate li;c is presented in Eq. (2.11).

li;c ¼ li;p þ li;s þ li;d ð2:11Þ

where li;p , li;s , li;d denote reduction rate of production controlling, carbon sinks
increasing and energy substitution respectively. The cost for carbon sink increasing
can be written as
26 2 MRICES

!
ðcsÞ ðsÞ Ai;t
Ii;t ¼ Ci li;s ri;t Yi;t ð2:12Þ
A"i;t

ðsÞ
where Ci is cost for increasing carbon sinks in a ton of emission reduction, ri;t is
the carbon intensity representing the trend of emission/output, which changes
according to Eq. (2.10).
In order to calculate the use of fossil fuel and non-fossil fuel annually under the
policy of energy substitution, the total energy consumption in each period has to be
figured out as
!
Ai;t
Eni;t ¼ 1i;t Yi;t ð2:13Þ
A"i;t

where 1i;t is the exogenous trend for energy intensity per output which grows
according to function (2.13).

lnð1i;t Þ ¼ lnð1i;t#1 Þ þ ci;r expð#di;a tÞ ð2:14Þ

Therefore, the amount of non-fossil fuel is proportionally related to gross energy

consumption and the emission reduction rate of energy substitution.

Ni;t ¼ Fi;t =ki;;FN ð1 # li;d Þ ð2:15Þ

where ki;FN represents the proportion of fossil fuel in total energy consumption. On
the other hand, if there is no policy of energy substitution, Eq. (2.15) can be
replaced as
" "
Ni;t ¼ Fi;t =ki;FN ð2:16Þ

" "
where Ni;t , Fi;t is the non-fossil and fossil consumption respectively if no energy
substitution policy is applied. Since consumptions of fossil and non-fossil fuel make
up the total energy use, we can further get the consumption of fossil fuel with
Eq. (2.17), no matter energy substitution policy is implemented or not.

Eni;t ¼ Fi;t þ Ni;t ð2:17Þ

Thus, the consumption difference of fossil fuel or non-fossil fuel between with
and without energy substitution policy is caught as
"
DNi;t ¼ Ni;t # Ni;t ð2:18Þ
"
DFi;t ¼ Fi;t # Fi;t ð2:19Þ
2.2 Model Description 27

Ground on the energy consumption in each period, we introduce the

learning-by-doing mechanism which is proposed by van der Zwaan et al. (2002)
into our model.

ðnÞ ðnÞ
Ii;t#1 ¼ gðXi;t Þai;N DNi;t ð2:20Þ

ðnÞ ðnÞ
Mi;t ¼ gðXi;t Þbi;N DNi;t ð2:21Þ

ðf Þ ðf Þ
Ii;t#1 ¼ gðXi;t Þai;F DFi;t ð2:22Þ

ðf Þ ðf Þ
Mi;t ¼ gðXi;t Þbi;F DFi;t ð2:23Þ

Equations (2.20)–(2.23) describe learning by doing for the investment and

maintenance cost of non-fossil and fossil energy consumption respectively, where
ðnÞ ðf Þ ðnÞ ðf Þ
Ii;t and Ii;t are investment while Mi;t and Mi;t are for maintenance, function g(.)
reflects technological change from accumulative consumption, ai;F ; bi;F is the
capital intensity and maintenance intensity for fossil energy respectively, ai;N ; bi;N ,
ai;F ; bi;F is the capital intensity and maintenance intensity for non-fossil energy
ðf Þ ðnÞ
respectively, Xi;t , Xi;t is the accumulative consumption of fossil and non-fossil
energy respectively. By van der Zwaan et al. (2002), we give

gðxÞ ¼ g0 xt#1 ð2:24Þ

lr ¼ 1 # 2t#1 ð2:25Þ

in which the value of the exponent t # 1 is the basis of the process of

learning-by-doing and derives from Eq. (2.25) related to learning rate lr .

2.2.3 GDP Spillovers

The mechanism of GDP spillovers in MRICES model is similar to Wang et al.

(2010), but the bilateral structure is extended so that a multilateral GDP spillover
can be investigated in climate change model. Figure 2.2 illustrates how the mod-
eling of GDP spillovers is coupled with other parts of the model. Generally
speaking, GDP of different countries work on each other, so that the emission of
each country is impacted, resulting a global temperature raise which will make a
feed back to productivity of each country. Thus a circular interaction from GDP
spillovers to productivity via temperature raise is constructed. For data inaccessi-
bility we modeled the GDP spillovers among China, the United States, Japan and
Europe Union. The GDP influence from other regions can be expressed in residual.
28 2 MRICES

Fig. 2.2 Coupling of GDP spillover with Climate sub-system and Economic sub-system

Based on Mundell-Fleming model and Wang et al. (2010), the change of GDP is
decomposed into impact from monetary policies, political policies and the GDP
fluctuation of other countries, expressed in Eqs. (2.26)–(2.29).

Dqc ¼ vc1 Dkca # vc2 Dðic # pcþ 1 þ pc Þ þ vc3 Dqa þ vc4 Dq j þ vc5 Dqe ð2:26Þ

Dqa ¼ va1 Dkea # va2 Dðia # paþ 1 þ pa Þ þ va3 Dqc þ va4 Dq j þ va5 Dqe ð2:27Þ

Dq j ¼ v1j Dkja # v2j Dði j # p jþ 1 þ p j Þ þ v3j Dqc þ v4j Dqa þ v5j Dqe ð2:28Þ

Dqe ¼ ve1 Dkae # ve2 Dðie # peþ 1 þ pe Þ þ ve3 Dqc þ ve4 Dqa þ ve5 Dq j ð2:29Þ

In expression (2.26)–(2.29), superscript c, a, j, e presents variables of China, the

US, Japan and EU respectively. Dq represents the deviation from the base simu-
lation result. Dk presents the deviation from the base of real exchange. Di presents
the deviation from the base of interest rate.
Based on Eqs. (2.26)–(2.29), we can get the GDP spillover between countries
(regions), shown as Eqs. (2.30)–(2.33).
2.2 Model Description 29

j
ln Y c # ln Y#1
c
¼ vc3 ðln Y a # ln Y#1
a
Þ þ vc4 ðln Y j # ln Y#1 Þ þ vc5 ðln Y e # ln Y#1
e
Þ
ð2:30Þ
j
ln Y a # ln Y#1
a
¼ va3 ðln Y c # ln Y#1
c
Þ þ va4 ðln Y j # ln Y#1 Þ þ va5 ðln Y e # ln Y#1
e
Þ
ð2:31Þ
j
ln Y j # ln Y#1 ¼ v3j ðln Y c # ln Y#1
c
Þ þ v4j ðln Y a # ln Y#1
a
Þ þ v5j ðln Y e # ln Y#1
e
Þ
ð2:32Þ
j
ln Y e # ln Y#1
e
¼ ve3 ðln Y c # ln Y#1
c
Þ þ ve4 ðln Y a # ln Y#1
a
Þ þ ve5 ðln Y j # ln Y#1 Þ
ð2:33Þ

In expression (2.30)–(2.33), Y c , Y a , Y j and Y e presents the GDP of China, the

US, Japan and EU respectively by which the dynamic interaction between national
economy is constructed with GDP spillover mechanism.

2.3 Parameter Estimation

With the model construction described above, the MRICES system was developed
to simulate climate change mitigation strategies. Since some of the parameters in
economic system are referenced from Eyckmans and Tulkens (2003), Nordhaus and
Boyer (2000) and van der Zwaan et al. (2002), we just list the values in Appendix A.
What should be pointed out is that the descending of emission intensity from
Nordhaus (1993) and Pizer (1999) is figured out on 1990s’ data, however the
current technological progress makes fleetly reduced emission intensity in recent
years. In other words, the progress in emission intensity from Nordhaus (1993) and
Pizer (1999) is underestimated for current condition. So that we estimate the current
change of emission intensity based on input-output table of China and the US,
which are representative for developing countries and developed countries
respectively. Result indicates that the emission intensity decrease 5.3% annually in
developing countries with 4.6% in developed countries. For convenience, the
change of emission intensity from Nordhaus (1993) and Pizer (1999) is denoted as
‘lower technological change’ and the one we estimated is denoted as ‘higher
technological change’ during the rest of the paper. We will consider each mitigation
strategy under the two technological progress levels.
On the other hand, since the GDP spillover module is the new we integrate into
the IAM, we determine the parameter estimation as well. Run with SPSS13.0, we
get the value for GDP spillovers as Tables 2.1, 2.2, 2.3 and 2.4.
30 2 MRICES

Table 2.1 Values for parameters in Eq. (2.30)a

Parameter vc0 vc1 vc2 vc3 vc4 vc5 vc6
Value 0.004 0.067 −0.005 0.432 0.229 −1.533 1.805
Sig. 0.002 0.334 0.357 0.105 0.104 0.001 0.000
a
Analyzed with SPSS 13.0; significance was set at the 5% level

Table 2.2 Values for parameters in Eq. (2.31)a

Parameter va0 va1 va2 va3 va4 va5 va6
Value −0.01 −0.174 −0.271 −0.016 0.399 −0.027 0.259
Sig. 0.396 0.060 0.001 0.152 0.065 0.165 0.102
a
Analyzed with SPSS 13.0; significance was set at the 5% level

Table 2.3 Values for the parameters in Eq. (2.32)a

Parameter v0j v1j v2j v3j v4j v5j v6j
Value 0.042 −0.038 0.127 0.032 -0.082 1.011 0.154
Sig. 0.479 0.239 0.057 0.112 0.185 0.001 0.290
a
Analyzed on SPSS 13.0; significance was set at the 5% level

Table 2.4 Values of the parameters in Eq. (2.33)a

Parameter ve0 ve1 ve2 ve3 ve4 ve5 ve6
Value −0.004 0.015 −0.194 0.00006 0.515 0.167 0.238
Sig. 0.102 0.436 0.000 0.746 0.000 0.053 0.014
a
Analyzed on SPSS 13.0; significance was set at the 5% level

2.4 Assessment of Emissions Mitigation Strategies

Nowadays, a variety of mitigation strategies are being proposed (Stern 2008;

BASIC 2006; Baer and Athanasiou 2008). But the quantitative influences from
these strategies on national economy and global climate change are unclear, for
which we can’t discriminate which strategy is much better. Therefore, we assessed
several mitigation strategies using our model from the perspective of effectiveness,
equality and efficiency.

2.4.1 Egalitarian Allocation of Emissions Quotas

The egalitarian principle allocates emissions permits based on the population of

each country. People in both developed and developing countries have equal rights
to an emissions permit. However, a key problem with this principle is that indus-
trialization occurred much earlier in developed countries than in developing
2.4 Assessment of Emissions Mitigation Strategies 31

countries. Tremendous carbon emissions levels have been observed since the
Second Industrial Revolution due to industrialization in developed countries. As a
result, North America and Europe have produced approximately 70% of the total
amount of CO2 emissions since 1850 due to energy production, whereas developing
countries have accounted for less than 25% of these emissions (Stern 2006). In
developing countries with extremely low historical levels of emissions, the current
level of emissions is necessary to support their current level of industrialization.
Thus, it would be unfair to assign emissions permits to developing and developed
countries under the egalitarian principle without considering historical emissions
levels.
To evaluate the control of global CO2 concentrations to within 500 ppm by the
year 2050, 1990 and 2005 were used as the starting point for historical emissions
levels and the year for allocation, respectively. The mechanism for egalitarian
allocation can be described by Eqs. (2.34) and (2.35).

Pw
PAll
i ¼ popi;2005 " ð2:34Þ
popw;2005

PRi ¼ PAll H
i # Pi ð2:35Þ

Here, PAll
i represents the total number of emissions permits that nation i is
assigned during the period from 1990 to 2050; popi;2005 and popw;2005 represent the
populations of nation i and the world in 2005, respectively; Pw is the total number
of emissions permits the entire world can use; PRi denotes the number of residual
emissions permits of nation i from 2006 to 2050; and PH i is the level of historical
emissions during the period from 1990 to 2005. The specific levels of historical
emissions and residual emissions for several nations (regions) are shown in
Fig. 2.3.
The business-as-usual (BAU) emissions level of each nation can be estimated
based on MRICES, and the emissions gaps between BAU emissions demands and
residual emissions quotas are shown in Table 2.5. Clearly, the emissions gap in the

Fig. 2.3 The emissions quotas for each country (region) in the egalitarian strategy
32 2 MRICES

Table 2.5 Emissions trading for each nation (region) in the egalitarianism strategya
China US Japan EU FSU ROW
BAU emissions until 2050 95.93 81.77 16.95 53.08 44.20 164.31
Residual emissions quotas 93.39 −0.96 5.08 24.11 5.3 239
Emissions gaps 2.54 82.73 11.87 28.97 38.90 −74.68
a
The year 1990 is used for a historical emissions starting point (units: GtC)

Table 2.6 Simulation results for the egalitarianism strategy

Lower technological change Higher technological change
Loss of accumulated GDP by Loss of accumulated GDP by
2050 2050
China −0.013% 0.004%
US −0.7% −0.5%
Japan −0.34% −0.12%
EU −0.33% −0.019%
FSU −2.8% −1.9%
ROW 0.03% 0.016%
Temperature rise by 2050 1.48 °C 1.42 °C
Temperature rise by 2100 2.31 °C 2.02 °C
CO2 concentration by 2050 426.7 ppm 414.6 ppm
CO2 concentration by 2100 508.89 ppm 450.37 ppm
Change of world utility by −0.18% −0.01%
2050
Change of world utility by 0.88% 1.55%
2100

US is extremely large, at approximately 82.73 GtC, and the US must develop

substantial emissions reduction measures or purchase emissions permits from other
nations. In the case of China, the emissions demands during the period from 2008 to
2050 are almost equal to its residual emissions quotas, which imply that the
emissions reduction burden for China will be relatively less than that of other
developed nations if the egalitarian allocation strategy is instituted. In Table 2.5, it
appears that the FSU must buy many emissions permits (Table 2.5), but this is not
the case in actuality because there is ‘hot air’1 in the FSU that can alleviate the
pressure of emissions reduction.
To evaluate the influence of the egalitarianism strategy on global climate change,
a policy simulation based on MRICES was developed. The results are summarized
in Table 2.6, and the changes in CO2 concentrations are depicted in Fig. 2.4.

1
‘hot air’: when the baseline emissions are below their entitlements, the amounts of the abundant
emissions rights are referred to as ‘hot air’.
2.4 Assessment of Emissions Mitigation Strategies 33

Fig. 2.4 Changes in CO2 concentrations under the egalitarianism strategy, using 1990 as the
baseline for historical emissions levels

With lower levels of technological change, the egalitarianism strategy can

control the CO2 concentration to within 500 ppm by 2050, but the temperature
change by 2100 would surpass the target set by the EU. These results illustrate that
a CO2 concentration within 500 ppm is not consistent with the 2 °C target by 2100.
The CO2 concentration limit at 2050 must be further lessened, which means that
countries must reduce emissions even more if this target is to be met by 2100.
Notably, however, if the levels of technological change increase, both the 2050 and
2100 targets will be attained.
From the perspective of economic influence, the FSU will suffer from GDP loss
more than other nations because the reduction rate in the FSU is relatively higher
when the model does not consider the ‘hot air’, which leads to a stronger economic
influence. Compared with the world accumulated utility by 2050 and 2100 under
BAU scenario, it is found that the change of accumulated utility by 2050 is negative
but positive by 2100 either with lower or higher technological change. So in the
long-run egalitarian strategy is beneficial for utility improvement.
Thus, the egalitarianism strategy, using 1990 as the baseline for historical
emissions levels, can achieve the 2050 target of controlling CO2 concentration to
within 500 ppm and the 2100 target of controlling the global temperature change to
within 2 °C. Based upon the results of this strategy, developed nations must make a
stronger commitment to activities that counteract the climate change caused by their
tremendous historical levels of emissions. Due to the emissions gaps that developed
nations face, these nations may need to purchase emissions rights instead of
focusing on domestic emissions reduction measures to alleviate the average miti-
gation cost.
34 2 MRICES

2.4.2 UNDP Strategy

In 2008, the UNDP proposed a mitigation strategy in which developed countries

were required to reduce their emissions levels by 80% relative to their 1990 levels,
and developing countries had to reduce their emissions levels by 20% relative to
their 1990 emissions levels (UNDP 2008).
Using a MRICES policy simulation, we found that the global temperature will
rise approximately 1.79 and 1.75 °C under lower and higher levels of technological
change, respectively, under the UNDP strategy. This result indicates that the UNDP
strategy would be effective for controlling global climate change. In particular,
under higher levels of technological change, each country could attain its mitigation
target with much lower reduction rates than those under lower levels of techno-
logical change.
With regard to the changes in global CO2 concentrations, the trends under the
two levels of technological change develop differently, as shown in Fig. 2.5.
Specifically, under lower levels of technological change, the trend in CO2 con-
centrations is U-shaped, which indicates that although the concentration would fall
in the beginning of the mitigation period, it would then begin to increase after
approximately 2045. Conversely, the trend in CO2 concentrations under higher
levels of technological change converges by the end of the century, which indicates
that global emissions will be controlled at a certain level in the long-term. Thus, a
higher level of technological change is distinctly better for accomplishing climate
protection.
The accumulated GDP losses in each country resulting from reaching the targets
described in the UNDP strategy are listed in Table 2.7. The GDP losses in
developing countries are higher than those in developed countries, indicating that
developing countries must invest more relative to their ability to pay. However, the

Fig. 2.5 Changes in CO2 concentrations under the UNDP strategy

2.4 Assessment of Emissions Mitigation Strategies 35

Table 2.7 Simulation results for the UNDP strategy

Lower technological change Higher technological change
Loss of accumulated GDP by Loss of accumulated GDP by
2050 2050
China 1.46% 0.52%
US 0.92% 0.46%
JAPAN 0.36% 0.17%
EU 0.38% 0.01%
FSU 1.79% 0.36%
ROW 0.96% 1.4%
Temperature rise by 2050 1.43 °C 1.48 °C
Temperature rise by 2100 1.79 °C 1.75 °C
CO2 concentration by 2050 386.5 ppm 392.9 ppm
CO2 concentration by 2100 402.9 ppm 393.5 ppm
Change of world utility by −0.72% −0.44%
2050
Change of world utility by −0.07% 0.26%
2100

situation associated with GDP loss in developing countries becomes less severe
when their emissions decline based on a higher level of technological change.
Therefore, transferring advanced technologies from developed countries to devel-
oping countries can help to release the mitigation burden on developing countries.
Although the influence of emissions reduction on the economy is relatively
tempered, this strategy is still far from appropriate as a basis for global action. The
emissions per capita by 2050 varies among countries; the highest per capita level in
the US is approximately 4.7TCO2e, which is one-fold the world average, as shown
in Fig. 2.6.

Fig. 2.6 Emissions per capita by 2050 under the UNDP strategy
36 2 MRICES

Thus, the UNDP Strategy can address global climate change to a significant
extent, but developing countries must absorb higher costs for mitigation and gain
lower emissions per capita than developed countries, which will result in a new
inequality in emissions rights and development rights throughout the world. The
change of world utility by 2050 and 2100 is also undesirable when compared with
that of egalitarian strategy, which means the world cost more for climate change.
The key fault of the UNDP strategy is that developing countries are required to
participate in emissions reduction simultaneously with developed countries.
Developing countries cannot manage the implementation of emissions reduction
measures and the elimination of poverty at the same time.
Based on our assessment, there should be differentiated obligations for devel-
oped and developing nations, with the objective of sustaining the equity rights of
economic development. Therefore, two key issues should be emphasized when
developing a global emissions mitigation strategy. Developed nations must assume
more responsibility in global emissions reduction. Furthermore, developed nations
must implement substantial emissions reduction measures earlier than developing
nations so that developed nations will have time to achieve economic development
and further alleviate the effects of climate change on the economies of developing
nations.

2.4.3 Copenhagen Accord

Based on the Copenhagen Accord, Annex I parties should strengthen their emis-
sions reduction measures, whereas non-Annex I parties should develop nationally
appropriate mitigation actions. The mitigation action targets for 2020 proposed by
the five countries (regions), which were modeled using MRICES, are listed in
Table 2.8.
Because no strategy has been proposed for emissions reduction after 2020, we
assume that each country will continue the mitigation actions listed in Table 2.8
until 2100 to explore the consequences on climate change. Based on a policy
simulation using MRICES, the increase in global temperature was found to be

Table 2.8 Mitigation actions for 2020 in Copenhagen Accord

Mitigation target Base Base Target
year value value
China Reducing the emissions intensity per unit of 2005 7.99 4.39
GDP in 2020 by 40–45% t/10,000 t/10,000
$ $
US Reducing emissions 17% by 2020 2005 1.57 GtC 1.30 GtC
EU Reducing emissions 30% by 2020 1990 1.20 GtC 0.84 GtC
Japan Reducing emissions 25% by 2020 1990 0.29 GtC 0.22 GtC
Russia Reducing emissions 25% by 2020 1990 1.03 GtC 0.75 GtC
2.4 Assessment of Emissions Mitigation Strategies 37

approximately 1.2 °C by 2020, 1.9 °C by 2050 and 2.8 °C by 2100. Clearly, this
result exceeds the target to limit the rise in global temperature to within 2 °C by
2100. Therefore, much stronger mitigation actions must be taken after 2020;
otherwise, combating climate change will become rather difficult if the temperature
increases 1.9 °C by 2050.
From the perspective of emissions intensity changes, a relatively even reduction
rate was revealed among the modeled countries. China exhibits a 45% reduction in
emissions intensity from 2005 levels by 2020, and the US, the EU, Japan and the
FSU exhibit 47%, 46%, 57% and 49% reductions in emissions intensity, respec-
tively. However, emissions reduction is not easy for any country, and technological
development is crucial for all countries; in particular, technological transfer from
developed to developing countries is essential.

2.4.4 A Strategy to Achieve the 2 °C Target

On the basis of the “common but differentiated responsibilities” principle, devel-

oped countries are asked to develop more emissions reduction measures at an
earlier time to address global climate change. Therefore, to achieve the 2 °C target
by 2100, we propose that developed countries reduce emissions by 80% below
1990 levels by 2050, that the FSU reduce emissions by 50% below 1990 levels by
2050 and that China and the ROW reduce emissions by 28% and 20%, respectively,
below 2005 levels. Policy simulations show that the strategy we proposed can
maintain the temperature rise below 2 °C by the year 2100.
Using this strategy, we compared the decreases in carbon intensity of each
country by 2050 and 2100, as shown in Fig. 2.7. China will exhibit an 89.9%
reduction in carbon intensity by 2050 relative to 2005, which is close to that of
developed countries, and the decrease in carbon intensity of the ROW will be
reduced by 79.6% by 2050, which is relatively lower than those of other countries.
However, the decrease in carbon intensity will be nearly equal among all countries

Fig. 2.7 Comparison of the

declines in carbon intensity by
2050 and 2100
38 2 MRICES

by 2100, and the decreases in China and the FSU will even surpass those of
developed countries. Thus, based on the changes in carbon intensity, the emissions
reduction efforts in developed and developing countries are equal.

2.5 Conclusions and Discussion

As we approach the post-Kyoto era, there are an increasing number of mitigation

strategies to address climate change. This study sought to develop an assessment
strategy for these strategies based on the objectives of effectiveness, equality and
efficiency. For this purpose, a climate policy model with GDP spillovers was
presented. Based on an extension of the Mundell-Fleming model, we simulated the
economic interactions among China, the US, the EU and Japan with a GDP spil-
lover mechanism. Consequently, emissions reduction measures developed in one
country will not only influence that country’s economy but also the economies of
the other countries via GDP spillover.
Based on assessments on the egalitarian allocation strategy, the UNDP strategy
and the Copenhagen Accord using MRICES, it is found that the egalitarian strategy
is helpful for developed countries to get more emission permits.
On account of equality, efficiency and effectiveness, there are several principles
which we have pay more attentions to when making global emission reduction
strategies. Firstly, the principle of common but differentiated responsibility must be
insisted, so that developed countries can contribute more in emission reduction.
Based on this principle, cutting 80% relative to 1990 levels by 2050 in developed
countries can be considered as the precondition for emission reduction in devel-
oping countries. Secondly, it’s not practical to take the same year as the baseline for
emission reduction in both developed and developing countries, otherwise the
reduction target will be too challenging for developing countries. Alternatively,
1990 and 2005 can be base years for developed and developing countries respec-
tively. Thirdly, promoting advanced technologies from developed countries to
developing countries is one of the ways to combat global climate change more
effectively and efficiently.

Appendix A

See Appendix Table A.1.

Table A.1 Values for parameters in Eqs. (2.1)–(2.25)
Parameter Equations Value References
China US Japan EU FSU ROW
Appendix A

a Equation (2.1) 0.3 0.25 0.25 0.25 0.3 0.25 Eyckmans and Tulkens (2003)
D0 Equation (2.2) 0.1371 0.0992 0.1057 0.1057 0.0771 0.144 Eyckmans and Tulkens (2003)
bi;1 Equation (2.2) 0.15 0.07 0.05 0.05 0.15 0.10 Eyckmans and Tulkens (2003)
ci;a Equation (2.3) 0.033 0.165 0.165 0.165 0.033 0.033 Nordhaus and Yang (1996)
di;a Equation (2.3) 0.006 0.005 0.005 0.005 0.006 0.006 Nordhaus and Yang (1996)
di;k Equation (2.4) 0.1 0.1 0.1 0.1 0.1 0.1
gi Equation (2.5) 0.3 0.25 0.25 0.25 0.3 0.25
qi Equation (2.7) 0.015 0.015 0.015 0.015 0.015 0.015 Eyckmans and Tulkens (2003)
si Equation (2.7) 0.198 0.198 0.198 0.198 0.198 0.198
ri;t Equation (2.8) 0.0007 0.0001 0.00006 0.0001 0.0007 0.0003
ci;t Equation (2.10) 0.033 0.165 0.165 0.165 0.033 0.033 Nordhaus and Yang (1996)
ri;t Equation (2.12) 0.00075 0.00015 0.000068 0.00012 0.00072 0.00029
1i Equation (2.13) 0.22 0.22 0.11 0.2 0.22 0.51
ki;FN Equation (2.15) 0.93 0.88 0.83 0.87 0.90 0.88
ai;N Equation (2.20) 3 2 2 2 3 3 van der Zwaan (2002)
bi;N Equation (2.21) 9 8 8 8 9 9 van der Zwaan (2002)
ai;F Equation (2.22) 3 3 3 3 3 3 van der Zwaan (2002)
bi;F Equation (2.23) 1 1 1 1 1 1 van der Zwaan (2002)
a
g0 Equation (2.24) 1 1 1 1 1 1 van der Zwaan (2002)
g0 b Equation (2.24) 2 2 2 2 2 2 van der Zwaan (2002)
a
lr Equation (2.25) 0.07 0.07 0.07 0.07 0.07 0.07 van der Zwaan (2002)
b
lr Equation (2.25) 0.1 0.1 0.1 0.1 0.1 0.1 van der Zwaan (2002)
a
Value for learning-by-doing in fossil-fuel technologies
b
39

Value for learning-by-doing in non fossil-fuel technologies

40 2 MRICES

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Chapter 3
The Impact of Sea Level Rise

3.1 Introduction

Under the influence of global climate change, countries around the world are
actively involved in addressing climate change; While worldwide uniform reduc-
tion program has not yet formed, but scholars have made various proposals, such as
Nordhaus (2007), Stern (2006), Sørensen (2008), UNDP (2008), Wang et al.
(2012a, b). For these policy programs tend to focus on the feasibility study to assess
the economic losses resulting emissions while ignoring various emissions reduction
programs need to been assess.
Back in the 1990s, Hoozemans et al. (1993) Under the global sea level rise
vulnerability analysis population, coastal wetlands and food production on a global
scale development of the appropriate methods; Darwin et al. (2001) estimated the
impact of sea level rise on economic perspective; Nicholls et al. (2008) use FUND
model to estimate the state of the West Antarctic ice sheet melting after the dramatic
impact on global sea-level rise resulting in a period of abrupt sea level rise provide a
reference value, but did not discuss the different emission reduction policy on the
impact of the loss of sea-level rise. Based on the latest research emphasizes the IAM
assessment of sea level rise (Joshi et al. 2013), but still not linked to emissions
reduction policy.
According to this trend, this chapter attempts to estimate sea level change losses,
them result from various emission reduction policies and programs. Its technology
roadmap is to simulate the effect of the countries (regions) under sea-level rise in
the future, and make a different impact on the economic assessment of sea level
change. The paper chose the famous Stern program, Nordhaus programs and Wang
et al. (2012a, b) steady growth policies made a comparative analysis.

© Springer Nature Singapore Pte Ltd. 2017 43

Z. Wang et al., Integrated Assessment Models
of Climate Change Economics, DOI 10.1007/978-981-10-3945-4_3
44 3 The Impact of Sea Level Rise

3.2 Model and Data

In this chapter, we used an updated version of MRICES (Multi-factors dynamic

Regional Integrated model of Climate and Economy System) model developed by
Wang et al. (2012a, b), which is an improved version of RICE. Compared with
RICE, MRICES increased the international economic interaction; the model
structure can be divided into macroeconomic performance, climate system
response, endogenous technological progress and multinational GDP spillover
module. MRICES model will be divided into four categories countries worldwide,
which are high-income countries, middle income countries; lower-middle-income
countries, low-income countries, and taking into account China, USA, Japan, and
the EU. Greater influence national, independent modeling, it will be subdivided into
eight countries or regions.
EMRICES (Enhanced Multi-factors dynamic Regional Integrated model of
Climate and Economy System) is an update version of MRICES, and it can analyze
the pros and cons of various global cooperation abatement programs, and suggested
mitigation policies effective program called global growth, the sea-level changes,
and add Russia and India in the global regions, thus we divide the world into ten
regions. In particular, CGE model is adopted to simulate China’s economic growth
in EMRICES or other region. This chapter mainly attempts to use EMRICES to
calculate the effect of the rise in sea level caused by global warming, and used to
assess the impact on the respective region due to a carbon tax, environmental tax on
the economy.
In fact, EMRICES model was added the level rise equation (Vermeer and
Rahmstorf 2009) to MRICES (Wang et al. 2012a, b). The main equation includes:
Atmospheric carbon cycle functions:

dM=dt ¼ EC " dV=dt " dSo=dt " dO=dt ð3:1Þ

Terrestrial carbon cycle function:

dV=dt ¼Nppt " it Vt ð3:2Þ

dSo=dt ¼ es it Vt " ds Sot ð3:3Þ

Ocean carbon cycle function:

dO=dt ¼ ro ððMt " Mt0 Þ " to ðOt " Ot0 ÞÞ ð3:4Þ

Temperature change function:

dT=dt ¼ v lnðMt =M0 Þ " mTt ð3:5Þ

3.2 Model and Data 45

Where M, V, Npp, So, O, EC , T represent Atmospheric carbon content, carbon

content of vegetation, vegetation carbon sequestration, soil carbon, the carbon
content of marine human activity carbon emissions, the global average temperature,
In order to assess the various the sea level rise situation under emission reduction
policies and programs, the paper added modules in the original sea-level rise cli-
mate model equations (Eq. 3.6), describing the global sea level rise, so will sea
level rise and global warming organically linked:

dH=dt ¼ aðTt " T0 Þ þ bdT=dt ð3:6Þ

Where H is the sea level, T is the global average temperature,T0 is global

average temperature initial value, a and b are constants.
Further, we refer FUND (Climate Framework for Uncertainty, Negotiation and
Distribution) model. The current FUND model the impact of the rise in sea level is
divided into four parts: 1. land loss; 2. wetland loss; 3. migration costs; 4. The
protection costs. It was shown in Fig. 3.1 with detailed flow.
First, the area of land loss due to sea level rise is expressed as:
c c
Dt;r ¼ min½dr ðSt r " St"1
r
Þ; 0r ' ð3:7Þ

Where Dt;r is the area r of land loss in the area of time t, dr is a function of rising
sea levels, which means that the loss of sea level rise per unit of land (square
kilometers/meters) lead, cr is a model based on elevation data correction parameter,

Social and Economic Scenarios

Sea level rise

The affected Coastal Resources

The cost and benefit analysis

The land loss The wetland loss The cost immigration Protection cost

Fig. 3.1 The flow of calculating sea level effect of FUND model
46 3 The Impact of Sea Level Rise

St represents the elevation at time t of sea level, #r is the largest amount of land loss
caused by sea-level rise, r is equal to the area of the area in 2000.
Land price is expressed as:
Yt;r =At;r
VDt;r ¼ uð Þ ð3:8Þ
YA0

Where VDt;r means that the price of land per unit area, Yt;r means that GDP, At;r
represents the area, u is the argument here is equal to four million U.S. dollars/sq
km, YA0 ¼ 0:635 (U.S. $ million/km2). Loss of land value is equal to the loss of
land area multiplied by the price of land.
Loss of wetland area of sea-level rise is calculated as follows:

Wt;r ¼ xsr DSt þ xM

r Pt;r DSt ð3:9Þ

Where Wt;r is the loss of wetland area, xsr and xM

r denote the unit due to sea
level rise and coastal wetland loss caused by compaction parameters.
Wetlands price is expressed as
C
yt;r b dt;r c W1990;r " Wt;r
VWt;r ¼ að Þ ð Þð Þd ð3:10Þ
y0 d0 W1990;r

Where VWt;r means that the price per unit area of wetlands, yt;r is the per capita
income for the region r at time t, dt;r is the population density, W1990;r is the initial
C
value of the wetland area, here in the region r wetland area in 1990, Wt;r is the value
of the cumulative loss of wetlands. a is a constant, b; c are elastic coefficients. Loss
of wetland area multiplied by the price would get the economic value of wetlands
losses caused by the loss. Again, the level of protection of human response to the
loss of sea-level rise caused by expanded expressed as:

1 PCt;r þ WLt;r
Lt;r ¼ max½0; 1 " ð Þ' ð3:11Þ
2 DLt;r

Where Lt;r is the protection level, which means that by accounting for the
protection of the coastline, to determine based on cost-benefit analysis. PCt;r is the
net present value of the cost of coastal protection, WLt;r is a result of the net present
value of wetland loss with coastal protection, DLt;r means that the net present value
of land loss without protective measures.
X1 1 1 þ q þ gt;r
PCt;r ¼ ð Þt PC0 ¼ PC0 ð3:12Þ
t¼1 1 þ q þ gt;r q þ gt;r
X1 1 1 þ q þ gt;r
WLt;r ¼ tð Þt WL0 ¼ WL0 ð3:13Þ
t¼1 1 þ q þ gt;r ðq þ gt;r Þ2
3.2 Model and Data 47

X1 1 þ gt;r t 1 þ q þ gt;r
DLt;r ¼ tð Þ DL 0 ¼ DL0 ð3:14Þ
t¼1 1 þ q þ g
t;r q2

Where PC0 , WL0 , DL0 is the average annual cost of protection, wetland loss and
land value of the initial value of the loss, here considered as a constant, respec-
tively; q and gt;r denote rate of time preference and revenue growth, where refer-
ence FUND model, q is valuing as 1%. Finally, the number of population migration
due to the loss of land due to population density is expressed as the area multiplied
by the loss of land value, the unit cost of migration is expressed as the area three
times the per capita costs.
We started in 2009 as the base year to calculate the impact of future climate
change and to bring. The paper divided the world to ten regions. The main units of
the following variables: GDP, capital stock and capital investment, land/wetland
loss values, unit: one billion U.S. dollars (B$ 2000 constant prices); Population,
Unit: million (M); greenhouse gas emissions, atmospheric carbon content, unit: one
billion tons of carbon (GtC); atmospheric CO2 concentration, unit: parts per million
(ppm); surface temperature changes, unit: Celsius (°C); sea-level rise, unit: cen-
timeters (cm); land/loss of wetlands, unit: square kilometer (km2).

3.3 A Group Reduce Emissions Scheme Setting

In this chapter,we discuss a variety of policy programs, namely BAU program,

Stern program, as well as the WZW program, it is a steady growth program of the
global program (Wang, Zhang, Wu), BAU program is as a benchmark comparison
variety programs.
Stern program is more radical reduction programs; it is that we should take
immediate and effective action to reduce carbon dioxide and other greenhouse gas
emissions. Stern is set in accordance with the program by 2050 to cut global carbon
emissions by 50% to 1990, and thereafter, national emissions to 2100 levels by
2050 than emissions decreased by 50%.
As the Stern program set more stringent emission reduction targets, China and
other developing countries is not enough to be fair and reasonable. Nordhaus
proposed progressive approach to reduce emissions in the next period of time,
rather than an extremely fast way. For Nordhaus program, this chapter is set: 2050,
high-income countries, according to Stern reduction programs, upper middle
income countries to reduce by 30% relative to 1990, China, India, 20% reduction in
emissions by 2005 based on, middle and lower income countries to maintain
emission levels by 2020, low-income countries without emission reduction; after
addition of low-income countries do not have to keep 2050 emissions reduction
beyond the rate of reduction.
World total emissions from 2020 to 2050, with 1990 as the baseline emissions,
80% reduction in carbon dioxide emissions by high-income countries, given Japan
48 3 The Impact of Sea Level Rise

no longer suitable for large-scale expansion of nuclear power scale, their emission
reduction targets 70%, upper-middle-income countries decreased by 50%, Russia
30%; compared to 2005 to reduce carbon emissions in China and India, 30%,
lower-middle-income countries to keep carbon emissions by 2020, low-income
countries do not participation in total emissions, making more opportunities for
developing countries, countries in economic growth in order to maintain a balance,
then to 2100, participation in the countries to maintain 2050 emissions reductions.
We call this as Effective Growth scenario.

3.4 Result

Table 3.1 shows the carbon emissions under the BAU scenario. In the case of
countries do not reduce emissions, the future carbon emissions will continue to rise,
the total global carbon emissions rose from 2010 to 2100 of 8.44 GtC of 20.08 GtC.
In the BAU scenario, in 2009 the United States the largest per capita carbon
emissions for each 4.7 tC China’s lack of its 1/3, equivalent to only about 45% of
high-income countries, but also lower than the European Union, Japan, Russia, the
high-income countries. To 2100, national per capita carbon emissions are rising, the
U.S. per capita carbon emissions rose to 6.9 tC, still ranked first, while China’s per
capita emissions have not reached the level of 2009 in the United States.
Meanwhile, India, lower-middle-income countries, middle income countries and
low-income countries, per capita emissions are still far below the level of
high-income countries. Although each country’s per capita emissions level of future
large difference, but in the global climate change externality effects, but all coun-
tries bear the risk of rising sea levels common in the BAU scenario, which requires
countries to have a positive commitment to the common emission reduction
responsibility.

Table 3.1 BAU scenario under regional carbon emissions (Unit: GtC)
Year China USA EU Japan Russia India High Medium Medium Low
income high low income
countries income income countries
countries countries
2010 2.17 1.47 1.0 0.3 0.44 0.56 0.79 1.13 0.53 0.05
2020 2.89 1.71 1.13 0.33 0.55 0.75 0.88 1.35 0.65 0.07
2030 3.51 1.92 1.26 0.37 0.68 0.96 0.98 1.56 0.79 0.08
2040 4.08 2.08 1.38 0.4 0.83 1.17 1.07 1.73 0.93 0.1
2050 4.58 2.21 1.48 0.42 0.98 1.37 1.15 1.86 1.07 0.12
2060 5.01 2.32 1.57 0.45 1.14 1.55 1.21 1.96 1.2 0.15
2070 5.37 2.41 1.64 0.47 1.3 1.71 1.26 2.04 1.32 0.17
2080 5.67 2.47 1.71 0.49 1.44 1.84 1.31 2.09 1.42 0.19
2090 5.91 2.52 1.76 0.5 1.58 1.96 1.34 2.13 1.52 0.22
2100 6.1 2.56 1.8 0.51 1.7 2.05 1.37 2.15 1.59 0.25
3.4 Result 49

3.4.1 The Temperature

According to the case simulated carbon emissions in the future, you can calculate the
future global average temperature rise. Figure 3.2, the simulated situation of each
abatement program global average temperature rise. To2100, BAU scenario
warming will reach 3.38 °C. Stern program because of its stringent emission
reduction targets by 2100 global warming was 1.79 °C. In contrast, Nordhaus,
program reduces the emission reduction efforts and finally to the 2100 global
temperature rise of 2.05 °C; it very closer to the target 2 °C. Finally, the effective
growth scenario considering the merits of the two scenarios, reaching 2 °C under the
premise of the target, taking into account each country emissions targets, making the
economic development of China and other middle-income countries have more
space to control temperature rise in 2100 in the less than 2 °C, is 1.97 °C.

3.4.2 The Sea Level

Under the influence of temperature rise, according to formula (3.6), sea level rise is
a linear function of temperature change with the temperature change rate of the
interference term. Since the model is a semi-empirical model, a and b are two
parameters estimated from historical data, select the data estimation results will
have a greater impact, and this is the complexity of the climate performance.
Simulating various scenarios of future global sea level rise is shown in Fig. 3.3. Sea
level rise and temperature rise is proportional to the height of the relationship
between the averages annual growth showed a slight increasing trend. BAU fastest
rising program which, in 2009 compared to 2100 increased by 94.4 cm, Stern
program rose 74.7 cm, Nordhaus’ program rose 76.8 cm, effective growth scenario
risen 76.4 cm. Expected compared to the IPCC Fourth Assessment Report, the
height of sea level rise in this century will be between 18 –59 cm between papers

Fig. 3.2 The temperature change under scenarios

50 3 The Impact of Sea Level Rise

simulated the height of sea level rise over the IPCC’s estimates, in 2100 an increase
of nearly 1 m in height. In addition, IPCC report nor the rapid changes in the
Greenland and Antarctic ice may occur into account. Semi-empirical model used in
this chapter established based on historical data and estimate the parameters of the
model to simulate sea level rise and global temperature rise of relations in the
future. Controversial model is exactly the above simple relationship can last long, it
is can’t be denied that there is still a big variable, especially in the less clear the area
of the Greenland ice sheet and the changes that may occur in the Antarctic.
Can also be seen from Fig. 3.3, the various options for reduction under the sea
level rises were decreased, and with the global rise in temperature is proportional to
the difference with the BAU Stern scheme reduces the maximum height of nearly
20 cm, the program except BAU among several other programs outside of the
difference is not great.

3.4.3 The Economic Loss of Sea Level Rise

3.4.3.1 The Land Loss Without Protection

Sea-level rise is mainly led to the loss of coastal land. In Fig. 3.4 we have calcu-
lated and given the cumulative loss of each country (regional) in 2100 under
resulting from sea level rise BAU scenario. With the rise in sea level, countries
(regions) loss area continues to rise, especially in middle-income and low-income
countries. By the 2100, The sea level will rise 94.4 cm, global land losses will up to
508,158.3 sq km, the loss of 155,636.4 sq km of wetlands. Lower middle-income
countries in 2100 reached a cumulative loss of 148,104.2 sq km and 41,817.4 sq km
of wetlands, is one of the largest areas of. The land loss of the smallest countries is
Japan, until 2100 for the loss of 2,365.3 sq km. China land loss of primacy in
Sea level rise(cm)

BAU
Stern
Nordhaus
Wang

year

Fig. 3.3 The sea level rise under scenarios (compared to 2009)
3.4 Result 51

Dryland
Wetland

Fig. 3.4 BAU scenarios in 2100 the cumulative loss of land and wetlands contrast (sq km)

various countries around the world, and in 2100 reached 33,327.9 sq km losses; in
addition, China’s wetland loss less than the United States and India, and the loss of
land of the United States immediately after China. The wetland loss is large for
lower-income countries, followed by upper middle income countries. In short, the
sea-level rise under global warming, impact on low-income countries is the most.
For China, because China has a vast coastal belt is longer, the impact on China’s
sea level rise significantly.
Due to the loss of wetland and loss of general land has some similarity, the
analysis will are to land behind a case study. Figure 3.5 shows our calculated under
four scenarios of land loss comparison chart, we can see the effective growth
scenario compared to the BAU scenario, Nordhaus and Stern under national pro-
grams (area) of land loss has been reduced, Stern programs and effective than under
the growth scenario is slightly smaller loss, land loss and rising sea levels and how
much basic proportional to the height. This shows that the case be slowing emis-
sions rise in global temperatures, thereby reducing the rise in sea level, the area of
natural land loss is also reduced. The gap between the outside of the three scenarios
BAU small, it is because the difference between the program under Nordhaus, Stern
programs and effective growth scenarios of sea level rise are small, so the loss of
land under several scenarios difference is not great.

3.4.3.2 The Land Loss Under Protection

In response to rising sea levels, some countries can take certain protective measures.
In Fig. 3.6, we have compared calculation results of the cumulative loss of land that
52 3 The Impact of Sea Level Rise

BAU
Stern
Nordhaus
Wang

Fig. 3.5 The accumulated land loss in 2100 under scenarios

there is protection measures with there is no protection by 2100 under the BAU
scenario, it can be seen from the figure, there is protection and unprotected contrast
vary widely, such as China and the United States, with protective measures or
without, the cumulative loss of land were 2680.7 and 3553.7 sq km. The Loss of
land is larger on middle-income countries, after adding substantial protection
measures, the land have also been reduced,. The effect of Japan’s most significant,
the protection will reduce loss compare with there is no protection to 5.6%. The
protection effect of Russia is 0, which because of its large land area, wetlands and
protection costs greatly exceed the value of the land value, resulting in a low level
of protection of a great relationship. In the case of protective measures, four sce-
narios in 2100 comparing the cumulative loss of land valuesshown in Fig. 3.7.
Figure 3.7 shows, the biggest loss is the BAU scenario, the difference of other
three scenarios is relatively small. In effective growth scenario, the largest loss in
the lower-income countries dropped from 37, 135.4 to 29, 777.4 compare with
BAU, followed by high-income countries have also fallen more than 20%, Japan,
due to the loss of too little has been difficult to show in Fig. 3.7 out. The cumulative
loss of Nordhaus scenario or Stern scenario is greater than the effective growth
scenario.

3.4.3.3 The Economic Loss

Based on EMRICES, we calculated the loss of land and wetlands caused by

sea-level rise, and estimated the economic value of direct losses and cost of the
migration and protection for the population under impact of sea level rise.
3.4 Result 53

Unprotect
Protect

Fig. 3.6 Comparison whether the protection of land loss in 2100 under BAU scenario

BAU
Stern
Nordhaus
wang

Fig. 3.7 The accumulated land loss in 2100 of different scenarios under protection

Figure 3.8 shows the four emission scenarios to 2100 countries (regions) the
cumulative loss of economic value.
Under the effective growth scenario, the economic loss is also the largest
lower-middle-income countries, to $341.47 billion, compared to the baseline sce-
nario to reduce the loss of nearly 25%, the United States, the European Union and
54 3 The Impact of Sea Level Rise

BAU
Stern
Nordhaus
Wang

Fig. 3.8 The accumulated economic loss in 2100 under scenarios (unit: billion dollars)

other countries (regions) also reduce economic losses more than 20%. Nordhaus
scenarios and Stern scenario economic losses or less, the trend remained is similar.
But the losses here only consider the direct economic losses caused by sea-level
rise.
Figure 3.9 shows the comparison on the economic loss under two cases under
the BAU scenario. As can be seen from the Fig. 3.9, the biggest difference is that

Protect
Unprotect

Fig. 3.9 A comparative economic value of the cumulative loss by 2100 (Unit: U.S. $ billions)
3.4 Result 55

the loss of China, four times more away, followed upper middle income countries,
there are also three times as many gaps; because two areas have in common is a
large population, wide area, without protection and protection are two very different
scenarios on population migration, the population needs to move out and move into
the economic costs. Differences in population and land loss disparity gap caused
economic loss are self-evident.

3.5 The Flood Area in China

Due to EMRICES is simulation systems be combined with GIS, Based on GIS, we

simulated change of sea level rise submerged area in China, and Inundation of
coastal areas is obtained. The study used data is SRTM DEM data. Figure 3.10

Fig. 3.10 Chinese mainland coast submerged area diagram (excluding small islands)
56 3 The Impact of Sea Level Rise

shows the entire Chinese coastal flooding case under BAU. (Using EMRICES
simulated, we found that BAU will bring the fastest rising, the sea-level will
increased 94.4 cm compared to 2009 by 2100. Therefore, we could use 100 cm to
estimate the Chinese coastal flooding situation under BAU sea-level rise case).
In Fig. 3.10, the arrow points to an enlarged portion can be seen in Figure. The
results discover that affected coastal part is still not small. The country is more
obvious Bohai Sea, Lixiahe watershed, Shandong coastal, Tianjin and Qinhuangdao
in some areas along the coast have a larger area to be flooded. Jiangsu submerged
area have very reasonable place in the figure, due SRTM DEM data in some places
there are holes.
With GIS spatial analysis based GIS, it were last flooded grid drawn without
considering China Sea islands are submerged under the circumstances, in the case
of sea-level rise of 1 m flooded area of about 28,000 sq km.

3.6 Discussion

By the simulation results of several scenarios, we found that it is impossible to

achieve emission reductions in Copenhagen 2 °C consensus under the baseline
scenario. In order to effectively control the rise in global temperature, corre-
sponding reduction targets and policies must be set. Stern emission control policy
programs, though could control the rise in temperature, but this scenario is more
favorable to high-income countries, but it is unfair to China and other developing
countries; Nordhaus scenario can control temperature lower than 2°, and appro-
priate efforts to reduce national emissions than high-income, has its positive side,
but the carbon emissions of view there is debatable place on fair. Under the
effective growth scenario can effectively control the rise in global temperatures,
reducing the rise in sea level, while the pressure is relatively small, it could ensure
smooth economic growth in world, reducing the countries (regions) in economic
losses.
In addition, outside of the model we have designed a small geographic infor-
mation system to analyze flooded under sea-level rise of 1 m in mainland China,
and it for EMRICES simulate provides a good test. GIS analysis obtained without
reducing emissions, rising sea levels will make China’s coastal areas (excluding
South China Sea islands) will submerge 30,000 sq km, the simulation results are
almost consistent with EMRICES. GIS analysis shows that China Bohai Sea,
Lixiahe watershed, Shandong coastal, Tianjin some areas along the coast,
Qinhuangdao and Pearl River Delta region have a larger area to be flooded.
The study also gives us some policy implications: First, sea level rise will bring a
lot of physical effects, including loss of land and wetlands, etc., which impact on
China’s living in the world, worse than the United States; secondly, thus will bring
some direct economic losses, but the impact is not great relative to GDP, but this is
not considered an indirect impact on the economy; third, adaptation measures to
reduce the loss of protection has played a significant role; in China, has protected
3.6 Discussion 57

and unprotected contrast situations differ loss of land area has eight times the
economic losses resulting difference is also more than four times. Therefore, China
needs to actively participate in climate protection in addition, there are local con-
ditions necessary to develop appropriate protective measures to cope with rising sea
levels submerged hazards.

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Chapter 4
EMRICES

4.1 Introduction

At present, countries around the world have realized that they need to tackle climate
change together, and negotiations coping with this issue had been held. Therefore,
the games on carbon mitigation among countries were brought in. The basic moti-
vation for the world to achieve the agreement of carbon mitigation scheme is that
every country could benefit from the scheme or even to maximize their interests.
However, due to the development bias among those countries, fairness on carbon
mitigation has become the primary requirement. All these pursuits require the
completion of a global game analysis. As a result, a research on global carbon
mitigation cooperation, from the perspective of game theory, is of great significance.
Currently, many scholars have researched on global greenhouse gas mitigation
in the perspective of game theory. Researches in this field can be divided into two
categories: one kind of the models focus on local problem in the global climate
protection. Such as Scheffran and Pickl (2000) discussed the possibility of inter-
national cooperation in joint implementation mechanism. Babiker (2001) used CGE
model to talk about the attachments of Kyoto Protocol the possibility of countries’
promises to reduce carbon emissions. Caparros et al. (2004) researched the carbon
mitigation game issues between developed and underdeveloped countries under
incomplete information. Kemfert et al. (2004) discussed the national climate mit-
igation cooperation under the influence of the international trade. Haurie et al.
(2006) constructed a differential game model based on carbon emissions trading
system. Tavoni et al. (2011) simulated the mitigation cooperation among the crowd
of different disposition in uncertain environment in experimental economics. The
other kind of models focuses on the achieving of global mitigation scheme. Such as
Tavoni et al. (1996), they divided the world into five areas, and launched game
strategy case studies. Yang and Sirianni (2010) used the RICE model to research
the non-cooperative Nash equilibrium, and discussed the feasibility of carbon quota
allocation according to the principle of “color preservation”. Some of the models

© Springer Nature Singapore Pte Ltd. 2017 59

Z. Wang et al., Integrated Assessment Models
of Climate Change Economics, DOI 10.1007/978-981-10-3945-4_4
60 4 EMRICES

the studies used are based on IAM (integrated assessment model), such as Kemfert
et al. (2004), Yang and Sirianni (2010) their works are based on WAGEM model
and RICE model, respectively. These models are described in detail on climate
change and economic development. Some models in other research simplified these
equations, and put more emphasize on game mechanism. However, these models
have some common flaws. First, these models set game strategy mainly according
to the rate of reduction in base scenario rather than from the global carbon emis-
sions control, but the real effective scheme to achieve according to IPCC mitigation
aims is to control the total emissions. Second, these models seldom considered
problems from the perspective of climate ethics. Wang et al. (2014) believe that the
Pareto improvement of mitigation scheme may be the fundamental guarantee to set
an accordant mitigation scheme worldwide. In this chapter, on the basis of the
national climate change ethics,we developed the MRICE model, and by using
which, we simulated and analyzed the economic growth and carbon emission of all
the countries or regions around the world and what the world would like to do in the
framework of game theory. MRICES model has great advantage in IAM. Firstly,
the method we adopt is IAM, which named MRICES. We improved a great flaw of
most of IAM in economic module. IAM usually did not consider the economic
relationship among countries. We add GDP-spillover module to overcome the flaw.
And the endogenous technology improvement module is also an innovation in
IAM. Therefore, we have novel insights in the method. Secondly, considering the
economic connection among countries, the climate games will be quite different.
We have also done the parameter sensitivity analysis in our paper. We discussed
how discount rate will affect the game results and the Pareto-consistent solution.
We think these work is important.
As the public goods characteristic of carbon dioxide, reducing emissions is
actually a game of non-cooperative Nash equilibrium without the global emissions
constraint. It means the reduction strategies of all countries will affect the welfare
correspondingly. At the same time, countries would choose the best mitigation
scheme for maximizing their welfare. Therefore, the standard used to determine
whether each country could benefit from the reduction scheme is that if it could
bring greater benefit for each country than Nash equilibrium could. The purpose of
this chapter is to seek a global carbon mitigation scheme so as to match the
principle of Pareto improvement.

4.2 Analysis Framework

4.2.1 The Model

Climate change will bring loss to global economy. Global mitigation scheme
aiming at climate change will reduce the loss, and countries would benefit from the
mitigation result. But participating in mitigation needs to limit current economic
4.2 Analysis Framework 61

development, and would bring corresponding costs. Measuring the loss and benefits
is the key to the model. IAM model is such an international popular model, which
combine the economic module and climate module together to evaluate the eco-
nomic loss and the cost of carbon mitigation scheme (Lessmann et al. 2009).
The IAM model in this research is MRICES (Multi-factor Regional Climate and
Economy System) (Wang et al. 2012), which is developed based on RICE model
initially developed by Nordhaus and Yang (1996). In the past decades, RICE model
played a pivotal role in the assessment of climate change, which can be found in the
2nd, 3rd, 4th IPCC assessment reports. MRICES divides the world into eight areas,
and it retains the original advantages of RICE. MRICES treats climate change
factors as production factors that affect economy. In particular, by means of the
GDP spillover modules, MRICES model shows the mutual influence of the global
economy. It is suitable for the research of national economic externality when
reducing the carbon emissions and it is better to reflect the mitigation policies.
The MRICES also take endogenous technology progress into account simultane-
ously, which means the technology progress depends on the accumulation of R&D
capital (Wang et al. 2012). These improvements have strengthened the connection
of regional economies, and also reflect the essence of technological progress.
The MRICES is currently used to assess some mitigation schemes (Wang et al.
2012). This chapter will analyze the cooperative game behavior of all countries on
mitigation based on EMRICES.

4.2.2 The Situation of Global Carbon Mitigation

IPCC report has proposed the control target of global climate change that global
temperature should not increase by 2 °C till 2100, this is the consensus at
Copenhagen 2008. It is generally considered that reducing global carbon emission
is inevitably required to fulfill this control target (Nordhaus and Boyer 2000; IPCC
2007; Stern 2007). Then, how much emissions is left in the future if global tem-
perature increased no more than 2 °C till the year 2100? By using climate module of
MRICES, This research assumes that global carbon emissions change linearly every
year, the simulation result shows that if the global temperature increased no more
than 2 °C by 2100, the maximum global carbon emissions in 2100 would be 3.18
GtC. Furthermore, in this model the global carbon emissions in 2010 was 8.2 GtC
as the beginning point,which means in 2100, the global carbon emissions should be
reduced to 38.8% of the emissions of 2010. Moreover, the per capita CO2 emissions
of Middle-income countries in 2010 was 3.46 GtC, approximately equaled to
70.9% of the world’s average per capita CO2 emissions (4.88 GtC). It means that
once the 2 °C limit was considered, the vast majority of countries including middle
income countries would confront a total emission reduction even from the per-
spective of equal per capita CO2 emissions, otherwise the targets would be too
difficult to achieve. Therefore, the target of controlling within 2 °C inevitably
requires the global participation in mitigating. In this chapter, we will study how to
62 4 EMRICES

reach a global agreement in the view of game theory with global participation to
total CO2 emissions reduction.

4.2.3 Global Mitigation Principles

In order to understand the basis of the game, we need to discuss some ethical
principles about the global cooperation to reduce emissions. There are two prin-
ciples for the global cooperation mitigation schemes considering reduction target.
The first one is the final solution should be accepted by each country or region. The
second one is, in the perspective of fairness, we should maintain growth opportu-
nities for developing countries as much as possible, because the developed coun-
tries have historical responsibility on the issue of global warming. The mitigation
scheme that can be accepted should possess following character that every country
and region would benefit from it, satisfying the principle of Pareto improvement. In
other words, the interests of all the participants should not be damaged because
carbon dioxide is the world’s largest public goods. In the perspective of welfare
economics, the purpose of mitigation is to improve the welfare of human beings, so
it is to a specific nation. The motion of one country to reduce CO2 emissions
depends on whether it could benefit from the action.
Basing on the principles above, a variety of programs could be designed to meet
the principle of Pareto improvement. However, the goal of this chapter is to take
developing countries interests into consideration for the fairness.
To sum up, in this chapter, the principle of designing mitigation scheme has
three points. Firstly, meet the emission reduction requirements. In specific, global
temperature should not exceed 2 °C in 2100. Secondly, match the principle of
Pareto improvement. Thirdly, keep fairness as much as possible.

4.3 The Game Design and Simulation

4.3.1 Welfare

The criteria that determined the willingness of one country or region whether
cooperate with each other to reduce carbon emissions should be defined at the first
time. In economics, welfare is usually seemed as the pursuit of biggest interest. The
welfare is generally defined as a function of consumption. For simplicity, y ¼ U ðCÞ
@U 2
denotes welfare, C means consumption. Thus, U ðC Þ meets @U @C [ 0; @ 2 C \0. This
1$s
article also follows this principle. Specific form is U ðC Þ ¼ ðC=L Þ
1$s ; s\1, where, s
is risk-averse coefficient. The larger s is, the less obvious the increase of welfare
caused by increased consumption is. And the variable L is population.
4.3 The Game Design and Simulation 63

The benefits of mitigation will reflect the total incomes in the future for a long
period. In fact, the benefit of each country will decline at the beginning of miti-
gation, and the incomes of climate changing brought by mitigation will be well
represented in the long run. Therefore, this chapter defines the welfare value as the
cumulative welfare value starting from the beginning year to the year 2100.
Furthermore, the future welfare is the NPV (the net present value) calculated by the
discount rate q. At the same time, this chapter accordingly calculated the total
welfare of total population in each country or region. The specific form is:

n
! "1$s
X $t Ci;t =Li;t
Ui ðCi;t ; Li;t Þ ¼ ð1 þ qÞ Li;t
t¼1
1$s

4.3.2 The Mitigation Strategy

As discussed above, to achieve the global climate change control objective that the
temperature could not exceed 2 °C till 2100, all the countries including middle
developed countries should reduce the total emission. Thus, we set the game
strategy as reduction rate of the total amount of each country or region in 2050
relative to benchmark year; and after 2050, all countries or regions would keep the
reduction rate as 2050 till 2100. The division of world and the corresponding
benchmark year are shown in Table 4.1.
It assumes that the game G has eight participants which are the eight countries or
regions in MRICES. Each participant has a strategy space: S1 ; S2 ; . . .; S8 , and sij 2 Si
means the strategy j of the game participant. j 2 f1; 2; . . .; 11g;
Si ¼ f0; 0:1; 0:2; . . .; 0:9; 1g. If si2 ¼ 0:1, it means the strategy 2 of the game par-
ticipant i is: till the year 2050, the total carbon emission of a country or region reduces
by 10% than the benchmark year. The payoff function is Ui , means the NPV of the
cumulative welfare values of the country or region i to the year 2100. This game can be
expressed as G ¼ fS1 ; . . .; S8 ; u1 ; :. . .; u8 g.
It is hard to use the traditional two-dimensional table to show game structure
because there are 8 main participants in the game. In this chapter, in order to illustrate
game structure vividly, game-agent are simplified to two parts: a country (such as EU)
and other countries,and then explained through the two-dimensional table. As shown
in Table 4.2, The EU and other countries are game participants, the mitigation rate is
game strategy, and Game income is the accumulated value of the participants in game.

Table 4.1 Benchmark year of each country or region

Country or region Benchmark year Country or region Benchmark year
China 2005 High developing countries 2005
America 1990 Middle developing countries 2005
Japan 1990 Low developing countries 2005
EU 1990 Developed country countries 1990
64 4 EMRICES

Table 4.2 The structure of EU

the game
Other country Abatement rate 0 0.1 0.2 0.9
0 (welfare of EU, welfare
0.1 of other country)
0.2
0.9

4.3.3 The Solution of the Nash Equilibrium

It’s hard to find the Nash equilibrium of the game from the analytical view because
of the complexity of MRICES. So we need to redesign the solution algorithm. This
chapter
! 0 0 design " algorithm as follows: firstly, preset any set of strategies
0
s ; s ; . . .; s8 as initial solution, and calculate the best mitigation scheme s1j& from
! 1 20 "
sij ; s2 ; . . .; s08 , and make the first country or region’s welfare U1 largest. Next, find
out the best mitigation scheme for the other countries successively. The calculation
!will
1 1
stop if there
1
" is! not
0 0
any change
0
" about strategy for all the countries, which means
s ; s ; . . .; s8 ¼ s1 ; s2 ; . . .; s8 . Otherwise, start a new round of calculation until
! 1k 2k " ! "
s1 ; s2 ; . . .; sk8 ¼ sk$1 1 ; sk$1
2 ; . . .; sk$1
8 . Then, the Nash equilibrium solution is
!& & &
" !k k k
"
s1 ; s2 ; . . .; sn ¼ s1 ; s2 ; . . .; s8 . Calculating flow is shown the Fig. 4.1.
This chapter use MRICES as platform and take computation algorithm in
Fig. 4.1. Calculate Nash equilibrium solution with the initial value ð0; 0; 0; 0;
0; 0; 0; 0Þ, ð0:1; 0:1; 0:1; 0:1; 0:1; 0:1; 0:1; 0:1Þ, ð0:2; 0:2; 0:2; 0:2; 0:2; 0:2; 0:2; 0:2Þ,
…, ð1; 1; 1; 1; 1; 1; 1; 1Þ. After calculation, the final solution is ð0; 0; 0; 0; 0; 0; 0; 0Þ
under the given initial value. That is to say, the Nash equilibrium solution we found
is that none of the countries or regions will adopt the mitigation strategy.
In order to prevent missing any solution, this chapter increase every country’s
strategy set Si ¼ f0; 0:05; 0:1; . . .; 0:95; 1g, and the final result is still
ð0; 0; 0; 0; 0; 0; 0; 0Þ.
The result of game shows that, if each country or region only cares about its own
maximum benefit, it would lead that no one would take action in mitigation.
However, cooperation can improve each country or region’s welfare. Therefore, the
global will be trapped in prisoner’s dilemma if the problem can not be solved
through negotiation on the issue of climate protection.

4.3.4 The Mitigation Scheme

This chapter searched for effective Pareto scheme based on MRICES and found out
that a scheme could meet the needs. The scheme is: China should reduce 20%
carbon emissions on 2005 levels by 2050; USA should reduce 63% carbon emis-
sions on 1990 levels by 2050; Japan should reduce 85% carbon emissions on 1990
4.3 The Game Design and Simulation 65

Set initial strategy (abatement strategy)

Find the optimal strategy for country i=1, with

other countries’ strategy unchanged.

Find the optimal strategy for country i=2, with

other countries’ strategy unchanged.

Find the optimal strategy for country i=3,…8, with

other countries’ strategy unchanged.

YE
Strategy change or not

NO

END

Fig. 4.1 The algorithm of the solution to the Nash equilibrium

levels by 2050; EU should reduce 85% carbon emissions on 1990 levels by 2050;
High developed countries should reduce 50% carbon emissions on 2005 levels by
2050; Middle developed countries should reduce 20% carbon emissions on 2005
levels by 2050; Developed countries should reduce 82% carbon emissions on 1990
levels by 2050. In the scheme, the global temperature increases by 1.996 °C in
2100. Therefore, the global temperature increment can be controlled within 2 °C,
and meet the moral constraints. Figure 4.2 shows the change trends of atmospheric
temperature and ocean temperature under this scheme.
It should be presented that, when the US reduction rate is too high, the cumu-
lative benefits could not be improved until 2100 due to the higher value of current
benefits in United States. China’s emissions reduction rate is lower than that of high
developing countries mainly because of China’s role in the world economy and
66 4 EMRICES

2.5

C
0
1.5
Temperature 1

0.5
0
2010 2020 2030 2040 2050 2060 2070 2080 2090 2100
Year

Atmospheric temperature Ocean temperature

Fig. 4.2 The temperature change trend chart of Pareto scheme

China’s current low level of per capita carbon emissions. If China’s emissions rate
was too high, China’s per capita carbon emissions levels would not be improved.
The world economy would be bigger affected since China and USA are the engines
of world economy, with financial and manufacturing sectors, respectively.
From the perspective of the cumulative welfare changes shown in Figs. 4.3 and
4.4, the cumulative welfare of China is 1.84% higher than that in the condition of
non-cooperative Nash equilibrium in 2100. The accumulation of USA’s welfare is
0.01% higher; the accumulation of Japan is 0.38% higher; the accumulation of
European is 0.19% higher; the accumulation of high developing countries is 0.88%
higher; the accumulation of middle developing countries is 1.66% higher; the
accumulation of low developing countries is 3.21% higher; the accumulation of
developed countries is 0.001% higher. The welfare values from all countries or
regions are better than that of the non-cooperative Nash equilibrium, so the scheme
meet the Pareto improve principle.

Cumulative Welfare Change of Developed Countries

0.60%
0.40%
0.20%
0.00%
-0.20% 2010 2020 2030 2040 2050 2060 2070 2080 2090 2100
-0.40%
-0.60%
-0.80%
-1.00%
-1.20%
-1.40%

Developed countries USA Japan EU

Fig. 4.3 Developed countries’ accumulate welfare change trend

4.3 The Game Design and Simulation 67

Cumulative Welfare Change of Developing Countries

4.00%
3.00%
2.00%
1.00%
0.00%
-1.00%2010 2020 2030 2040 2050 2060 2070 2080 2090 2100

-2.00%
-3.00%

HD MD LD China

Fig. 4.4 Cumulative welfare change rate in developing countries

In brief, the results shows, the cooperation scheme is better than none of the
countries adopt mitigation strategy. From the ethics, it is not only the effective way
to solve prisoner’s dilemma, but also reasonable.

4.4 Sensitivity Analysis

There are many parameters in the MRECIS model, and many scholars have dis-
cussed about the parameters in IAM, especially about the analysis of the discount
rate in welfare. Nordhaus’ discount rate is 1.5% (per year), Stern’s discount rate is
0.1% (per year). The differences of the discount rate also caused many scholars’
debate (Mendelsohn 2006; Stern 2006; Nordhaus 2007; Weitzman 2007). Discount
rate reflects to which extent people care about the future. The higher the discount rate
is, the less people would care about the future welfare, and vice verse. Beckerman
and Hepburn 2007 raised this issue of discount rate to the ethic level, considering
that the discount rate is the important parameter to reflect intergenerational equity.
So the sensitivity analysis to the discount rate was done in this chapter.

4.4.1 The Nash Equilibrium

Low discount rate means that future losses would be high when it discounts to
present. So it may affect the emission reduction strategy. By changing the discount
rate in MRICES and calculating at 0.5% intervals from 0.01% to 3%, we can find
Nash equilibrium is that all countries do not take the total mitigation strategy. The
discount rate does not affect the Nash equilibrium within the scope of the discount
68 4 EMRICES

rate. The policy implication of the result is that the cumulative welfare values would
be very different under the different discount rates. But if all countries try to
maximize their own welfare without cooperation, they still don’t take action in
mitigation.

4.4.2 The Pareto Principle

While Nash equilibrium is not affected by the discount rate, different discount rate
can be further investigated that whether the Pareto improvement of mitigation
scheme could be satisfied. So we calculated when discount rate equals 1%, 1.5%
and 3%. The previous result is when the discount rate is 1.5% in this chapter.
In Stern scenario, the discount rate is 0.1%, the accumulative welfare of each
country increases higher compared to 1.5% discount rate. The cumulative welfare
improvement in developing countries is still greater than that of the developed
countries. The mitigation scheme satisfies the principle of Pareto improvement
(Figs. 4.5 and 4.6).
In order to observe the effect of the discount rate on Pareto improvement, the
scenario of the discount rate equals 3% was calculated. In this scenario, the
accumulation welfare of countries will become smaller compared with Nordhaus
scenario, and the accumulation of welfare can be improved in developing countries,
while the cumulative benefits of developed countries is not improved. This scheme
cannot satisfy Pareto improvement (Figs. 4.7 and 4.8).
Simulation results showed that when the discount rate increases, the original
scheme of the nature of the Pareto improvement may be broken, and range of

Cumulative Welfare Change of Developing Countries

5.00%
4.00%
3.00%
2.00%
1.00%
0.00%
-1.00% 2010 2020 2030 2040 2050 2060 2070 2080 2090 2100
-2.00%
-3.00%

HD MD LD China

Fig. 4.5 Developed countries’ accumulate welfare change trend when the discount rate is 0.1%.
(Notation: HD represents for high developing countries, MD represents for middle developing
countries, LD represents for low developing countries)
4.4 Sensitivity Analysis 69

Cumulative Welfare Change of Developed Countries

1.50%

1.00%

0.50%

0.00%
2010 2020 2030 2040 2050 2060 2070 2080 2090 2100
-0.50%

-1.00%

-1.50%

Developed countries USA Japan EU

Fig. 4.6 Developing countries’ accumulate welfare change trend when discount rate is 0.1%

Cumulative Welfare Change of Developing Countries

3.00%

2.00%

1.00%

0.00%
2010 2020 2030 2040 2050 2060 2070 2080 2090 2100
-1.00%

-2.00%

-3.00%

HD MD LD China

Fig. 4.7 Developed countries’ accumulate welfare change trend when discount rate equals 3%

schemes which meet Pareto improvement would narrow down. When the discount
rate decreases, the original scheme of the nature of the Pareto improvement may not
be broken, and range of schemes which meet Pareto improvement will enlarge. This
is mainly because when the discount rate is higher, people care less about the
welfare of the future. The welfare change characteristic of mitigation is that the
welfare will be lower at the early stage because of mitigation, but at the later stage,
the welfare will be higher because the decreased temperature reduces the economic
losses.
An obvious conclusion is that the higher the discount rate of a country is, the
harder the cumulative benefits could be improved. Therefore, the less likely the
country would participate in the scheme. There may be differences between the
discount rate in different countries (Davidson 2006). Developing countries are
70 4 EMRICES

Cumulative Welfare Change of Developed Countries

0.00%
2010 2020 2030 2040 2050 2060 2070 2080 2090 2100
-0.20%

-0.40%

-0.60%

-0.80%

-1.00%

-1.20%

Developed countries USA Japan EU

Fig. 4.8 Developing countries’ accumulate welfare change trend when discount rate equals 3%

under high-speed infrastructure renewal and construction at present, while devel-

oped countries infrastructure renewal has been basically finished. Thus, Developing
countries’ discount rate may be higher than the developed countries’. Consider this
situation, developing countries’ task of mitigation may be lower than the reduction
rate involved in this chapter.

4.5 The Conclusion

This research constructs three global mitigation cooperation plans in the perspective
of global mitigation cooperation scheme. Firstly, keep the agreement of global
climate change control, which means that meet the Copenhagen Consensus con-
trolling global temperature would not raise over 2 °C by 2100. Secondly, meet the
principle of Pareto improvement, and all countries’ cumulative welfare can benefit
from this mitigation. Thirdly, reflect the fairness of the principle of “common but
differentiated responsibilities”. On this basis, this study proposes a scheme which
can meet the three principles, and provide theoretical support for further climate
negotiations.
(1) Considering some important parameters, such as discount rate, this chapter
examines the influence of discount rate on non-cooperative game equilibrium
and the impact on the characteristics of the principle of Pareto improvement of
the mitigation scheme.
(2) The results revealed that the discount rate does not affect the Nash equilibrium.
It means no matter how important people valued future, the importance of
future is not more than current’s, because the discount rate is positive, if all
countries only care for their own benefit maximization, no one will take the
total mitigation strategy.
4.5 The Conclusion 71

(3) The discount rate will affect the characteristics of Pareto improvement. In
general, the lower the discount rate is, the more the schemes meet the char-
acteristic of Pareto improvement, and vice versa. In particular, if a scheme
meets Pareto improvement, as long as the discount rate is smaller than the value
of the original scheme adopted, the scheme would meet the characteristics of
the Pareto improvement; If the discount rate is bigger than the original one, the
scheme would not necessarily meet the characteristics of the Pareto improve-
ment, since the scheme proposed in this chapter meets Pareto improvement. But
when the discount rate is 3%, it does not meet the Pareto improvement scheme.
When adopted the discount rate of 0.1%, the result not only meets the Pareto
improvement scheme, but also shows more space for improvement.
Of particular note is,because of the difficulty of data acquisition, the model in
this chapter have adopted the same discount rate at all the countries; but the dis-
count rate of developing countries is much higher than that in developed countries
since developing countries are in a fast development period of infrastructure
renewal and construction. If taking this fact into consideration, the mitigation
scheme designed in this research still need further revision, which means the
reduction rate of developing countries should be lower.

Acknowledgements We are grateful for the financial support which was provided by Grant
No. 2012CB955804 from the National Basic Research Program of China (973 Program).

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Chapter 5
The Analysis for Synergistic Effect
of Policy of Environmental Tax
with Dynamic CGE in China

5.1 Introduction

Environmental tax, also known as eco taxes, green taxes, is to solve the environ-
mental pollution, which rose in international taxation academia at the end of the
twentieth century; there is not a clear definition yet. In general, the environment tax
internalizes the social cost of ecological destruction and environmental pollution
into the production cost, the producers’ and the consumers’ behaviors are affected
through the market price, the distribution of environmental resources is decided by
market mechanism. Environmental tax has a relatively perfect system and tax
experience in Europe and the United States. In China, current levied taxes which are
related to environmental protection include resource tax, travel tax, urban mainte-
nance and construction tax, vehicle purchase tax, etc. These taxes have played a
certain role on China’s resources and environment protection, but they are not
specifically according to the resource protection. Environmental tax hasn’t been
levied yet. With the rapid development of China’s economy and the acceleration of
the industrialization process, demand and exploitation of resources has also
increased sharply, coupled with China’s rapid population growth and urbanization
level enhancement unceasingly, making the poor resource situation worse. In order
to improve the increasingly severe situation of resources and environment, the
demand for environment tax is becoming more and more urgent.
For a long time, China’s energy structure dominated by coal, causing serious air
pollution such as sulfur dioxide and soot, endanger the health of residents. The
economic loss caused by acid rain is even more astonishing. In 1992, China began
to carry out the sewage charges work on SO2 emission into provinces and nine
municipalities. In 1998, SO2 charging work was expanded to control area of SO2
and control area of acid rain (two control zones). With the collection of sewage
charges, a lot of problems exposed, such as the narrow taxation collection, low
charging standard, it is difficult to play the effect of protecting environment and
saving resource. In order to solve the increasingly serious environmental problems,

© Springer Nature Singapore Pte Ltd. 2017 73

Z. Wang et al., Integrated Assessment Models
of Climate Change Economics, DOI 10.1007/978-981-10-3945-4_5
74 5 The Analysis for Synergistic Effect of Policy …

the sulfur tax is considered to be an effective policy means proposed by many

scholars. Wu and Xuan (2002) used the CGE model to analyze reduction effects and
economic effects of sulfur tax. They found that the sulfur tax can significantly
reduce SO2 emissions and improve the quality of the environment, and they esti-
mated the optimal tax rate of the sulfur is 400–660 yuan/ton SO2 (Wu and Xuan
2002). Based on China’s input-output data 2002, Ma (2008) simulated the effects of
sulfur tax by CGE model, the results showed that the sulfur tax can reduce SO2
emission and would not produce a big negative impact on GDP. The energy
structure can also be improved, the optimal tax rate of the sulfur is 460–1050 yuan
per ton of sulfur (Ma 2008). Using directional environmental production frontier
function model, Tu (2009) estimated the shadow prices of China’s provincial
industrial SO2 emissions. It was found that shadow price of industrial SO2 emis-
sions have a great relationship with the discharge scale, the shadow price of
industrial SO2 emission is different in different provinces, the shadow price of
industrial SO2 discharge in Beijing area is 2800 million yuan per ton, the national
average is 200 million yuan per ton (Tu 2009). Using the directional distance
function model, Yuan and Cheng (2011) estimated the shadow price of SO2
emissions from the industrial sector at China’s 284 prefectural-level cities, the
results showed that the shadow price of industrial SO2 from 2003 to 2008 was
51.58 thousand yuan per ton (Yuan and Cheng 2011).
CO2 is considered to be the most important greenhouse gas, greenhouse gas
emissions control in recent years mainly revolves around to reduce CO2 emissions.
China is a big energy consumption and emission power, due to the development of
the economy and urbanization speeding up, energy demand will rise further. With
increasing CO2 emissions in the atmosphere, the carbon tax is considered to be one
of the effective means to control global warming. However, to reduce CO2 emis-
sions and the use of fossil fuels, is bound to affect the economic development of
China. Under the background of global economic integration, it will also affect to
the world economy through international trade. Therefore, before the implemen-
tation of emission reduction policy, it is necessary to simulate the economic impact
of reductions in carbon emissions and emissions reduction effect.
In fact, many scholars in China as early as 2002 had already started to analyze
carbon emission reduction effect and economic effect of levying a tax on carbon. He
et al. (2002) used the static CGE model to simulate the impact of carbon tax on the
national economy under the different targets, and estimated the marginal cost of CO2
which is between 88.4 and 418.2 Yuan/ton, the equivalent of 324.1–1533.4 Yuan/ton
carbon (He et al. 2002). Gao and Chen (2002) adopted MARKAL MACRO model
and set up different carbon tax levels, such as 30 dollars per ton of carbon, 50 dollars
per ton of carbon, 100 dollars per ton of carbon, 150 dollars per ton of carbon and 200
dollars per ton of carbon, the results showed that higher rates would produce a larger
negative economic effects, emission reduction effect is not ideal. When the tax rate is
50 dollars per ton of carbon, carbon emissions effect is the best, and the economic
consequences is the smallest, the equivalent is 413 Yuan per ton of carbon with 2002
exchange rates (Gao and Chen 2002). Wang et al. (2005) simulated macroeconomic
effects under different reduction rate using dynamic recursive CGE model, the results
5.1 Introduction 75

showed that with the increase of reduction rate, the marginal cost of carbon emissions
also increases accordingly. Under the reduction rate of 10–30%, carbon abatement
costs are 100 Yuan per ton and 470 Yuan per ton, respectively (Wang et al. 2005).
Cao (2009), using a recursive dynamic CGE model, simulated the economic and
environmental impact of carbon tax, the study found that a carbon tax (50–200 Yuan
per ton of carbon) have less effect on the economy, but the carbon reduction effect is
remarkable (Cao 2009). Wang et al. (2009) adopted the comprehensive evaluation
model of China’s energy policy—energy economy model (IPAC–SGM) developed
by the national development and reform commission to simulate the impacts of
different carbon tax on China’s CO2 emissions and macro economy, the tax rate of
high, medium and low solution respectively are 100–200 Yuan per ton of carbon, 50–
100 Yuan per ton of carbon, 20–40 Yuan per ton of carbon, in order to avoid the
negative economic effects of carbon tax, China’s carbon tax should start with lower
rate, then gradually improve (Wang et al. 2009). Zhu et al. (2010), based on CGE
model, set up high rate (100 Yuan per ton of carbon), medium rate (50 Yuan per ton of
carbon), and low rate (20 Yuan per ton of carbon), respectively. The reduction effect
and economic effect of carbon as production tax and consumption tax are analyzed;
the results found that carbon tax can reduce CO2 emissions, the reduction effect of
carbon as production tax is better than carbon as consumption tax (Zhu et al. 2010). Li
(2014) by using the static CGE model, set up five different carbon tax, 10 Yuan per
ton of carbon, 20 Yuan per ton of carbon, 40 Yuan per ton of carbon, 180 Yuan per ton
of carbon and 300 Yuan per ton of carbon, respectively. The results found that carbon
tax can reduce CO2 emissions and adjust energy structure, but it will have certain
influence on the economy, so carbon tax should started with lower rate (Li 2014).
As the voice of environmental taxes growing in recent years, the environment
tax rate design becomes the focus in the academic circles. During the research
above only one environmental tax is analyzed. What effect does levying environ-
ment tax have? What kind of impact will it have on the economy? Will different
types of taxes have influence on each other? How to design tax rates to protect the
environment at the same time not causing serious economic fluctuations? To answer
these questions, this article, taking sulfur tax and carbon tax as examples, simulated
the impact of environment tax on the macro economy and emission reduction effect
based on the dynamic general equilibrium model.

5.2 Model and Data

5.2.1 CGE Dynamic Mechanism

This article mainly is to simulate the impact on the macro economy after levying
environment tax, thus the CGE equation system is simplified, detailed CGE
equation system can be seen in Wang etc. Wang et al. (2010). CGE dynamic
equation is given here. CGE dynamic adopted Solow growth model, the source of
76 5 The Analysis for Synergistic Effect of Policy …

economic growth is the dynamic of capital, the capital is equal to the capital stock
of the previous period to deduct depreciation plus new investment (Liu et al. 2013).

Kt þ 1 ¼ ð1 $ dk ÞKt þ It ð5:1Þ

Capital growth rate equation is deduced.

K_ It $ dk Kt
¼ ð5:2Þ
K Kt
K_ denotes the increase of capital. In addition, the production technology level and
labor are dynamic.

A_
¼ ga0 eat ð5:3Þ
A

L_
¼ gl0 ent ð5:4Þ
L
ga0 and gl0 are the initial growth rate of productivity level and initial growth rate of
labor force, respectively. a and n are the growth rate of productivity level growth
rate and the growth rate of labor force growth rate. In addition, SO2 emission
intensity and carbon intensity are dynamic, sSj0 and sCj0 denote SO2 emission
intensity and carbon intensity in 2007, respectively. k1 and k2 represent the growth
rate of SO2 emission intensity and the growth rate of carbon intensity, respectively.

sSj ¼ sSj0 ek1 t ð5:5Þ

sCj ¼ sCj0 ek2 t ð5:6Þ

5.2.2 Data

Data used for SAM table are from 2007 input-output table of China, 2007 China’s
statement of cash flows as well as 2008 China statistical yearbook. The SAM table
in adopted this chapter, the output elasticity of capital and labor output elasticity
data are from Liu (2013). SO2 data are from China’s environment statistical
yearbook, the output of each department is from China’s statistical yearbook. What
needs to be noted here is that these departments from the two yearbooks are not
correspondent to the 42 departments from input-output table. This article only
consider SO2 emissions from industrial sector (except construction), therefore based
on the departments of input-output table, departments from the statistical yearbook
are merged or split to obtain SO2 emissions data and output of the resulting
industrial sector except construction sector, the SO2 emission intensity of each
5.2 Model and Data 77

department is calculated. Carbon emissions and carbon intensity data of each

department are from Liu (2013).

5.3 Results Analysis

5.3.1 Baseline Scenario

In this chapter, based on dynamic CGE model, China’s future economic growth,
SO2 emission and carbon emission trend are forecasted, the results are taken as a
benchmark scenario (BAU) to be compared with the results when levying envi-
ronmental tax. In BAU scenario the GDP growth trend and the trend of SO2
emissions are shown in Fig. 5.1.
From Fig. 5.1 it can be seen that China’s GDP maintains growing under BAU
scenario, rising from $7.47 trillion in 2015 to $69.95 trillion in 2100. SO2 emissions
showed a declining trend, which is due to technological progress and continuous
decline of sulfur dioxide emission intensity. SO2 emissions will fall from 13.57
million tons in 2015 to 3.42 million tons in 2050, in 2100 it will drop to 0.082
million tons.
From Fig. 5.2, it can be seen that carbon emissions shows obvious character-
istics of EKC curve under BAU scenario, carbon emissions peak value appeared in
2034, the peak value is 3832.09 MtC, then carbon emissions continue to reduce, it
will reduced to 1169.13 MtC by 2100. Zhu et al. (2009) calculated that China’s
future carbon emissions peak value under the optimal steady growth path is 3835.7

biiilion US dollars GDP SO2 ten thousands tons

80,000 1,600

70,000 1,400

60,000 1,200

50,000 1,000

40,000 800

30,000 600

20,000 400

10,000 200

0 0
2015 2025 2035 2045 2055 2065 2075 2085 2095 2105

Fig. 5.1 China’s future GDP and SO2 emissions under BAU scenario (2015–2100)
78 5 The Analysis for Synergistic Effect of Policy …

MtC carbon emissions

4,500

4,000

3,500

3,000

2,500

2,000

1,500

1,000

500

0
2015 2025 2035 2045 2055 2065 2075 2085 2095 2105

Fig. 5.2 The carbon emissions trend under BAU scenario (2015–2100)

MtC, the carbon emission peak value appeared in 2040 (Zhu et al. 2009). Wang
et al. (2010) calculated China’s net carbon emissions after taking account of
emissions from the cement production and forest carbon sink, the peak value of net
carbon emissions appeared in 2031, carbon emissions peak value is 2637 MtC
(Wang et al. 2010), which is smaller than the results from CGE simulation. This is
because that the CGE model and the optimal growth model is different, besides
CGE simulation didn’t consider the absorption effect of forest.

5.3.2 Sulfur Tax Scenario

Since 2005 China began to levy fees on sulfur dioxide in accordance with the
standard of air pollutant. Sewage charge is 0.6 Yuan each equivalent weight of
pollution, the equivalent weight of SO2 is 0.95 kg, so sewage charge is 631.58
Yuan per ton of SO2. Compared with the previous fee standard of 0.2 Yuan, it has
improved, but still not achieving the effect of reducing SO2 emission. Sweden
started the sulfur tax in 1991 to reach the target of reducing 80% of SO2 emissions
based on 1980 year, the tax is levied according to the sulfur content of coal, per
kilogram of sulfur are levied 30 Swedish kronor, which is equivalent to 14150
Yuan per ton SO2. In this chapter, in reference to the design of Swedish sulfur tax,
sulfur tax rate is designed as 14000 Yuan per ton of SO2, sulfur tax scenario levied
on the industrial sectors except construction sector were simulated.
5.3 Results Analysis 79

From Fig. 5.3 It can be seen that GDP maintains a growing trend after levying
sulfur tax, but compared to the baseline scenario total GDP decreased. In the sulfur
tax scenario, by 2100 the total GDP would be 60.10 trillion US dollars, decreased
by 9.85 trillion US dollars compared with the baseline scenario. Cumulative loss of
specific departments’ GDP from 2015 to 2100 are shown in Fig. 5.4.
From Fig. 5.4, it can be seen that after levying sulfur tax, the cumulative GDP
loss of agriculture forestry animal husbandry and fishery is the biggest, followed by
the third industrial departments, the cumulative GDP of financial services, public
administration and social organizations, education, transportation and warehousing
industry and real estate industry have larger loss. The second industry disaffected
lightly except food manufacturing and tobacco processing industry, chemical

billion US dollars BAU sulfur tax

80,000

70,000

60,000

50,000

40,000

30,000

20,000

10,000

0
2015 2025 2035 2045 2055 2065 2075 2085 2095 2105

Fig. 5.3 GDP comparison between BAU scenario and sulfur scenario

billion US dollars the cumulative GDP loss of each sector

90,000
80,000
70,000
60,000
50,000
40,000
30,000
20,000
10,000
0
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 sectors

Fig. 5.4 The cumulative GDP loss of each sector in sulfur tax scenario
80 5 The Analysis for Synergistic Effect of Policy …

ten thousands tons BAU sulfur tax

1,600

1,400

1,200

1,000

800

600

400

200

0
2015 2025 2035 2045 2055 2065 2075 2085 2095 2105

Fig. 5.5 SO2 emissions comparison between BAU scenario and sulfur tax scenario

industry, electric power, heat production and supply industry. From the simulation
results it can be seen that levying sulfur tax has larger economic impact on the
primary industry and the third industry which don’t emit SO2 emission, some key
SO2 emissions emitter such as paper printing and stationery and sports goods
manufacturing, non-metallic mineral products industry, metal smelting and rolling
processing industry have smaller accumulated GDP losses.
From Fig. 5.5 it can be seen that after levying sulfur tax, SO2 emission is
reduced compared to the baseline scenario, emission reduction effect is remarkable
especially at earlier stage. SO2 emissions will reduce 0.94 million tons in 2015,
emissions decreased gradually, in 2100, SO2 emission will reduce 0.12 million tons.
From Fig. 5.6 it can be seen that reduction effect of sulfur tax on carbon
emission is also very obvious, carbon emissions have decreased significantly
compared with the baseline scenario. The peak value of carbon emissions in sulfur
tax scenario is in 2032, two years earlier than the baseline scenario. The peak value
of carbon emissions is 3328.39 MtC, which reduced by 503.70 MtC than the peak
value in baseline scenario.

5.3.3 Carbon Tax Scenario

Considering foreign mature carbon tax mechanism and the carbon tax simulation of
domestic scholars of our country, this chapter simulates the impact of carbon tax on the
economy and emission reduction effect, the tax rate is set to 50 Yuan per ton of carbon.
From Fig. 5.7 it can be seen that after levying carbon tax GDP declined com-
pared with the baseline scenario, in 2100 GDP is 64.54 trillion US dollars, which
5.3 Results Analysis 81

MtC BAU sulfur tax

4,500

4,000

3,500

3,000

2,500

2,000

1,500

1,000

500

0
2015 2025 2035 2045 2055 2065 2075 2085 2095 2105

Fig. 5.6 Carbon emissions comparison between BAU scenario and sulfur tax scenario

billion US dollars BAU carbon tax

80,000

70,000

60,000

50,000

40,000

30,000

20,000

10,000

0
2015 2025 2035 2045 2055 2065 2075 2085 2095 2105

Fig. 5.7 GDP comparison between BAU scenario and carbon tax scenario

declined by 5.42 trillion US dollars compared to the baseline scenario. GDP losses
of specific departments are shown in Table 5.1.
The cumulative GDP losses of all departments, GDP losses in 2030, 2050 and
2100 after levying carbon tax can be seen from Table 5.1. Simulation results show
82 5 The Analysis for Synergistic Effect of Policy …

Table 5.1 GDP loss of each sector in carbon tax scenario (%)
No. Sectors Cumulative 2030 2050 2100
1 Agriculture, forestry, animal husbandry and −7.39 −5.37 −7.06 −8.04
fishery
2 Coal mining and washing industry −8.37 −6.18 −8.05 −9.15
3 Petroleum and natural gas exploitation −8.14 −6.16 −7.83 −8.8
4 Metal mining industry −7.22 −5.23 −6.91 −8
5 Nonmetallic ore and other mining industry −6.86 −4.77 −6.56 −7.71
6 Food manufacturing and tobacco processing −7.37 −5.38 −7.04 −8
industry
7 Textile industry −7.1 −4.84 −6.78 −7.91
8 Textile, leather and feather products industry −7.51 −5.39 −7.19 −8.22
9 Wood processing and furniture manufacturing −6.82 −4.66 −6.51 −7.64
10 Paper printing and sports goods manufacturing −7.06 −5.08 −6.77 −7.73
11 Petroleum processing, coking and nuclear fuel −7.91 −5.8 −7.6 −8.65
processing industry
12 Chemical industry −7.55 −5.5 −7.24 −8.26
13 Nonmetallic mineral products industry −6.25 −4.24 −5.96 −7.2
14 Metal smelting and pressing industry −6.76 −4.66 −6.47 −7.65
15 Fabricated metal products −6.96 −4.8 −6.66 −7.82
16 General, special equipment manufacturing −6.45 −4.39 −6.16 −7.36
17 Transportation equipment manufacturing −7.04 −4.87 −6.73 −7.88
18 Electrical machinery and equipment −7.3 −5.14 −7 −8.14
manufacturing
19 Communications equipment, computers and −6.72 −4.57 −6.43 −7.55
other electronic equipment manufacturing
20 Instrumentation and cultural office supplies −7.35 −5.3 −7.05 −8.08
machinery manufacturing
21 Handicrafts and other manufacturing −7.64 −5.45 −7.32 −8.41
22 Waste −7.13 −5.11 −6.83 −7.89
23 Electricity, heat production and supply industry −9.49 −7.26 −9.18 −10.26
24 Gas production and supply −8.27 −6.11 −7.94 −8.99
25 Water production and supply industry −7.9 −5.9 −7.59 −8.56
26 Construction −4.02 −3.01 −3.87 −4.76
27 Transportation and warehousing −7.38 −5.29 −7.07 −8.11
28 Postal services −7.28 −5.32 −6.98 −7.93
29 Information transmission, computer services −4.97 −3.73 −4.86 −5.35
and software industry
30 Wholesale and retail trade −6.49 −4.59 −6.21 −7.14
31 Accommodation and catering services −6.35 −4.67 −6.11 −6.89
32 Financial industry −6.99 −4.95 −6.68 −7.67
33 Real estate −5.05 −3.45 −4.81 −5.57
34 Leasing and business services −6.97 −5.01 −6.67 −7.62
(continued)
5.3 Results Analysis 83

Table 5.1 (continued)

No. Sectors Cumulative 2030 2050 2100
35 Research and experimental development −7.09 −5.32 −6.82 −7.68
industry
36 Integrated technical services −7.26 −5.19 −6.96 −8.01
37 Water conservancy, environment and public −7.31 −5.29 −6.97 −7.96
facilities management industry
38 Resident services and other services −5.11 −4.06 −5.03 −5.45
39 Education −7.37 −5.45 −7.05 −7.98
40 Health, social security and social welfare −7.94 −6.01 −7.63 −8.56
41 Culture, sports and entertainment −6.81 −4.98 −6.52 −7.41
42 Public management and social organization −7.25 −5.36 −6.95 −7.85

MtC BAU carbon tax

4,500

4,000

3,500

3,000

2,500

2,000

1,500

1,000

500

0
2015 2025 2035 2045 2055 2065 2075 2085 2095 2105

Fig. 5.8 Carbon emissions comparison between BAU scenario and carbon tax scenario

that each sector’s output are affected negatively after levying carbon tax, among
them, the negative influence on electricity, heat production and supply industry is
the largest, whose GDP loss in 2100 reached 10.26%. Followed by coal mining and
coal washing industry, whose GDP loss in 2100 is 9.15%. The GDP losses of
petroleum and natural gas exploitation, oil processing, coking and nuclear fuel
processing, production and supply of gas and water production and supply industry
are also large, which were 8.80, 8.65, 8.99, 8.56%, respectively.
From Fig. 5.8 it can be seen that carbon emissions decreased than the baseline
scenario after levying carbon tax. In carbon tax scenario, carbon emissions peak is
in 2033, the peak value is 3564.65 MtC, which reduced by 267.45 MtC than the
emissions peak value in the baseline scenario.
84 5 The Analysis for Synergistic Effect of Policy …

BAU carbon tax

ten thousands tons
1,600

1,400

1,200

1,000

800

600

400

200

0
2015 2025 2035 2045 2055 2065 2075 2085 2095 2105

Fig. 5.9 SO2 emissions comparison between BAU scenario and carbon tax scenario

From Fig. 5.9 it can be seen that carbon tax can reduce SO2 emissions, SO2
emissions will reduce by 0.47 million tons in 2015, then decreased gradually, in
2050 it will reduce by 0.24 million tons, it will reduce by 0.06 million tons in 2100.

5.3.4 Sulfur Tax and Carbon Tax Scenario

Levying sulfur tax and carbon tax at the same time were simulated in order to get
economic effects of sulfur tax and carbon tax and reduction effect.
From Fig. 5.10 it can be seen that GDP decreased significantly compared with
the baseline scenario after levying sulfur tax and carbon tax at the same time, the
negative impact is gradually increasing, GDP is 55.12 trillion US dollars in 2100,
which reduced by 14.83 trillion US dollars, dropped more than 21.20% compared
with the baseline scenario.
From Fig. 5.11 it can be seen that levying both sulfur tax and carbon tax can
significantly reduce SO2 compared with the baseline scenario, especially in the
early stage.SO2 emissions will be reduced by 1.30 million tons in 2020, emission
reduction rate reached to 12.26%. In 2050 emission reductions amount reached 0.65
million tons, reduction rate is 19.16%. SO2 emissions will be reduced to 0.18
million tons in 2100, reduction rate is 21.85%.
5.3 Results Analysis 85

billion US dollars BAU sulfur tax+carbon tax

80,000

70,000

60,000

50,000

40,000

30,000

20,000

10,000

0
2015 2025 2035 2045 2055 2065 2075 2085 2095 2105

Fig. 5.10 GDP comparison between BAU scenario and sulfur tax and carbon tax scenario

ten thousands tons BAU sulfur tax+carbon tax

1,600

1,400

1,200

1,000

800

600

400

200

0
2015 2025 2035 2045 2055 2065 2075 2085 2095 2105

Fig. 5.11 SO2 comparison between BAU scenario and sulfur tax and carbon tax scenario

From Fig. 5.12 it can be seen that carbon emissions are significantly lower than
the baseline scenario after levying carbon tax and sulfur tax at the same time.
Carbon emission speak appeared in 2031, the peak value is 3111.11 MtC, which
decreased 720.99 MtC compared with the baseline scenario, the peak year is three
years earlier than the baseline scenario.
86 5 The Analysis for Synergistic Effect of Policy …

MtC
BAU sulfur tax+carbon tax
4,500

4,000

3,500

3,000

2,500

2,000

1,500

1,000

500

0
2015 2025 2035 2045 2055 2065 2075 2085 2095 2105

Fig. 5.12 Carbon emissions comparison between BAU scenario and sulfur tax and carbon tax
scenario

5.4 Conclusions

In this chapter, based on a dynamic computable general equilibrium model the

economic development trend and reduction effects of levying sulfur tax, carbon tax,
both of sulfur tax and carbon tax at the same time were simulated, respectively. The
main conclusions are as follows:
(1) In the baseline scenario, China’s economy will maintain a rising trend, the total
GDP will reach 69.95 trillion US dollars by 2100, SO2 will continue to reduce
emissions due to technological progress and sulfur dioxide emission intensity
decrease. Carbon emissions present the characteristics of EKC, the peak value
appeared in 2034, carbon emission peak value is 3832 MtC. (2) In the sulfur tax
scenario, GDP has declined compared with the baseline scenario, the total GDP
is 60.10 trillion US dollars in 2100. Levying sulfur tax not only reduces the SO2
emissions, but also decreases carbon emissions significantly compared with the
baseline scenario, carbon emissions peak value appeared in 2032. (3) In the
carbon tax scenario, GDP is 64.54 trillion US dollars in 2100, which declined
by 5.42 trillion US dollars compared to the baseline scenario. Carbon emissions
peak appears in 2033, the peak value is 3564.65 MtC, which reduced by 267.45
MtC than the emissions peak value in baseline scenario. (4) In the sulfur tax
and carbon tax scenario, GDP is 55.12 trillion US dollars in 2100, which
5.4 Conclusions 87

reduced by 14.83 trillion US dollars than the baseline scenario, SO2 emission
and carbon emissions were reduced, carbon emissions peak appeared in 2031.
Some scholars proposed that the environmental tax can bring double dividend
(Gao and Li 2009). Based on the conclusions in this chapter, sulfur tax, carbon tax
and levying these two environmental taxes at the same time did not lead to double
dividend. Thus we give the following policy suggestions: (1) the tax rate design of
the environmental tax should be in line with China’s actual conditions. In order to
reduce emissions and protect the environment, economic development should be
considered not to produce great economic loss. (2) The environment taxes should
be reasonable, to avoid negative effects of double or even multiple taxes on the
economy.

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Chapter 6
CIECIA

6.1 Introduction

Currently, our world is in a serious situation regarding climate change, making it

urgent to implement appropriate solutions. Numerous global carbon abatement
schemes have been proposed including the Stern Scheme, Nordhaus Scheme,
UNDP Scheme and some important strategies proposed by Chinese scholars e.g.
the principle of equality on global per capita emissions, the principle of equality on
accumulated per capita emissions and the Global Economic Growth Scheme (He
et al. 2004; Chen et al. 2005; Ding et al. 2009; Wang et al. 2012; UNDP 2007).
However, there are still divergences in reduction responsibilities and obligations
among countries. The primary reason for these divergences is that the global
cooperating carbon abatement is closely related to the economic loss division and
the distribution of economic benefits of countries. Thus, it is important to build a
global economic-climatic integrated model to accurately assess the economic
impact of the climate mitigation scheme on different countries, searching for rea-
sonable carbon abatement schemes that consider fully the economic benefits to
abatement participating countries, and providing scientific bases for the interna-
tional climate negotiations.
Integrated Assessment Model (IAM) has become mainstream in global
economic-climatic research studies. IAMs, which combine interdisciplinary theo-
ries and methods, and have comprehensive and integrated system structures and
powerful policy assessing abilities, synthetically consider human economic activ-
ities and climate change, and are very applicable to simulation and analysis of
global climate mitigation policies (Weyant et al. 1996; Whitman et al. 1997;
Schneider 1997; Kelly and Kolstad 1999; Tol 2001; Ackerman et al. 2009).
However, the existing IAMs still have some shortcomings and are facing
challenges.
First, in many existing IAMs, including some famous ones such as DICE
(Nordhaus 1992) and RICE (Nordhuas and Yang 1996), the economies of countries

© Springer Nature Singapore Pte Ltd. 2017 89

Z. Wang et al., Integrated Assessment Models
of Climate Change Economics, DOI 10.1007/978-981-10-3945-4_6
90 6 CIECIA

are respectively independent, which makes those IAMs unable to reflect the impact
of one country’s economic change on the global economy. Among them, DICE
considered the world economy as a whole; RICE divided the global economy into
country level; however, the international economic relationships are still lacking;
IMAGE (Rotmans 1990) divided the economy into sectoral level; however, there is
still a lack of inter-sectoral economic relationships. Thus, the mitigation schemes
developed by those IAMs do not conform to reality because they ignore interna-
tional economic relationships. Actually, the schemes generated by those IAMs
always contain risks leading to global economic crises because of the possibility of
breaking the global economic general equilibrium.
Second, the process of technological progress is essential for future develop-
ment. In fact, technological innovation has been considered the most effective
solution to environmental problems. Thus, ignoring technological progress does not
conform to reality. Technological progress would reduce energy consumption and
the emissions of pollutants and reconstruct the industrial structures of countries.
Unfortunately, some existing IAMs, especially policy optimization IAMs, e.g.,
MERGE (Manne et al. 1995) and WITCH (Bosetti et al. 2007), trend to pay
attention to energy technologies, and always ignore changes in industrial structure
influenced by technological progress, which is also an important basis of carbon
emission intensity reduction. In addition, policy optimization IAMs are always
relatively simple for their computational expenditures. Thus, their economic divi-
sions are always limited at the country level and cannot reflect the economic
relationships among sectors. MRICES (Wang et al. 2012), which was developed
based on RICE, adopts an international GDP spillover model to describe economic
relationships among countries. However, its economic division is still at the country
level, making it impossible to describe the technological progress of the
carbon-involving industries exactly. In addition, because different sectors always
have different emission behaviors, the generalized macro models cannot reflect
relative environmental problems appropriately.
Third, the technological progress mechanisms in some IAMs always adopt
methods such as the empirical estimation of progress speeds and technology
parameter estimation. These methods cannot reflect the uncertainty of technology
progress, causing those macroeconomic models to degenerate into technical eco-
nomic models that are utilized for short-time problem analysis and decreasing the
reliability of the climatic-economic assessments. Because of parameter sensitivities,
the outcomes of those models are unstable.
Fourth, some technical economic models consider neither the global economic
equilibrium, nor the industrial structure change, whereas CGE models, e.g.
GREEN, FUND, EPPA, and ANEMI_2, focus on the global economic equilibrium,
but simplify the economic impact of climate change too much (Bosetti et al. 2007;
OECD 1997; Tol 1997; Paltsev et al. 2005; Akhtar et al. 2013). Thus, those models
are not very realistic.
To overcome the shortcomings of the models mentioned above, the global GHG
cooperating abatements and their economic impacts should be studied in the
background of industrial change and global economic general equilibrium. In this
6.1 Introduction 91

study, a new climate change economic IAM, named the Capital, Industrial
Evolution and Climate change Integrated Assessment model (CIECIA) has been
built. The economic core of CIECIA is a multi-country-sector general equilibrium
model that is modified and extended based on Jin (2012). Two international capital
flow modes are adopted in CIECIA for reflecting the economic interactions among
sectors and countries under the constraints of equilibrium. Meanwhile, according to
the mode of evolutionary economics (Nelson and Winter 1982), the theories of
process technological progress and knowledge capital are introduced into CIECIA
to realize the endogenous mechanism of technological progress (Lorentz and
Savona 2008; Buonanno et al. 2003). Based on CIECIA, carbon abatement sce-
narios are designed to assess and analyze the global cooperating carbon abatement
schemes in this study.

6.2 Model and Data Sources

For solving the problems proposed here, modeling innovations are necessary. First,
the global economic equilibrium should be included in the model system to reflect
economic globalization and to ensure that the global economy will not be at risk
because of the implementation of the abatement policies of several countries.
Second, to reflect the real world, the endogenous sectoral technology progress
mechanism should be realized in the model, ensuring the policy analysis of the
sectoral innovation and climate policy. The new IAM that is built in this research—
CIECIA—meets those requirements. CIECIA divides the entire world into several
countries, and in every country, the economic system is composed of several
sectors. Every sector in the countries has several economic behaviors, e.g., pro-
ducing, trading, consuming, investing, and realizing technology progress, etc., and
the global economic equilibrium is achieved based on the
demand-supply equilibrium among sectors of countries. It is assumed that the
capital and commodity flow among sectors of countries freely, without investment
or trade barriers. Sectors in one country have a unique wage rate and the same labor
technology level in one step. The discount rates of countries are uniform. In this
study, henceforth, j denotes countries, i denotes sectors and g denotes global level.

6.2.1 Economic Module

In this study, a two-layer-nested function formation comprises the Leontief function

and the Cobb-Douglas function is employed to represent the relationships among
labor, capital stock, value added and gross output. The sectoral gross output is
composed of value added and intermediate inputs, and the value added is formed by
labor, capital stock and knowledge capital.
92 6 CIECIA

(
j j j
)
M 1;i;t M k;i;t M I;i;t
Xi;tj ¼ min ; . . .; ; . . .; ; X" ; k ¼ 1; . . .; I ð6:1Þ
a1; j;i;t ak; j;i;t aI; j;i;t i; j;t
! "ai ! "1%ai # $ Z
b
Xi;" j;t ¼ Xi; j;t Ki;tj At j Li;tj Zt j j;t ð6:2Þ

I
X
Yi;tj ¼ j
Mk;i;t pk;t þ Xi;tj ð6:3Þ
k

where Xi;tj represents the value added of sector i of country j in step t; Xi;j;t
"
represents
j;k
the initial value added formed by labor and capital; Mi;t is the intermediate input k
in the production process of sector i of country j; ak;j;i;t is the coefficient of inter-
mediate input of sector i in country j; Ki;tj is the capital stock of sector i in country j
in step t; Li;tj denotes the labor; Atj is the labor technology level of country j in step t;
ai is the output elasticity of capital stock of sector i; Ztj denotes the knowledge stock
of country j in step t; bZj;t denotes the output elasticity of knowledge capital; pk;t is
the price of good k. Because of free trade among countries, there is one interna-
tional price associated with each good i in each step; Xi;j;t denotes the influence of
climate change on the economy, which will be described in Sect. 2.2. The purpose
of introducing the Leontief function is to implement the abatement policies into
sectors.
The associated price index of goods is composite by the good’s price pi;t and the
global output equilibrium share parameter ci . According to Jin (2012), the associ-
ated price index is the same in all countries and is normalized to 1.
I #
Y $ ci
pt ¼
! pi;t ¼1 ð6:4Þ
i

The wage rate equals the marginal output of labor. Because of the full mobility
of workers in one country, there is a unique wage rate across sectors in this country
in one step.
@Xi;tj Xi;tj
wi;tj ¼ pi;t ¼ ð1 % ai Þ pi;t ð6:5Þ
@Li;tj Li;tj

According to Abel (2003) and Jin (2012), the cumulative process of capital stock
is represented in the form of the Cobb-Douglas production function in this study,
whereas the knowledge capital is accumulated with the Perpetual Inventory
Method.
6.2 Model and Data Sources 93

Ki;tj þ 1 ¼ aðIKj i;t Þ/ ðKi;tj Þ1%/ ð6:6Þ

Ztjþ 1 ¼ ð1 % dZ ÞZtj þ IZtj ð6:7Þ

J
X J X
X I
IZj t þ IKj i;t ¼ Itg ð6:8Þ
j j i

where IKj i;t denotes the investment to capital stock of sector i in country j; IZj t
denotes the knowledge capital investment of country j; Itg is the global investment
in step t. In this study, the international investing behavior is a weighting form of
two different investing mode following Gu and Wang (2014).
The good markets clear when the global output of each product equals its global
consumption, which comprises intermediate consumption, final consumption and
the part for capital goods commodities (CGDS).
J
X J
X J X
X I J X
X I X
I
Yi;tg ¼ Yi;tj ¼ ci;tj þ j
xk;i;t þ j
Mk;i;t pi;t ð6:9Þ
j j j i j i k

The global value added comprises the labor value added and the capital value
added, which can be divided into consumption and investment on the demand side.
Thus, the global value added clearing is given by
J
X J
X J X
X I
g
Xi;t ¼ Xi;tj ¼ ci;tj þ j
xk;i;t ð6:10Þ
j j j k

According to Jin (2012), the price equilibrium function can be given by

c
pi;t ¼ gi Xtg ð6:11Þ
Xi;t

From Eq. 6.4 to Eq. 6.11, a global economic equilibrium system is built, which
ensures that the implementation of policies is restricted to not destroying economic
equilibrium in the analysis of global carbon abatement policies and avoiding
causing economic risks or stimulating crises.
According to Wang et al. (2012), the Keynes-Ramsey utility function is adopted
in this study to reflect the changes of economic powers of countries, and is taken as
the basis of the analysis of abatement schemes’ economic impacts.
T
# j% j $1%q
X C t Pop t
UA j ðT Þ ¼ ðb þ 1Þ Poptj
%t
ð6:12Þ
t¼1
1%q

where UA j ðT Þ denotes the accumulated Ramsey utility of country j until step T; Ctj
denotes the consumption of country j in step t; Poptj denotes the population of
country j; b is the discount rate; q is the time preference of consumers. According
to Buchner and Carraro (2005) and Wang et al. (2012), the value of b is 0.015, and
94 6 CIECIA

according to Wang et al. (2006), the value of q is 0.198, which is gained by

computing the depreciation rates of Currencies and the changes in exchange rates.

6.2.2 Climate Module

All of the energy products are provided by the energy sector of countries. The
energy consumption of sectors in countries can be given by

Ei;tj ¼ sEi;j ME;i;t

j
ð6:13Þ

where Ei;tj denotes the energy consumption of sector i in country j in step t; sEi;j
denotes the energy consumption per energy product use, i.e. energy intensity. Thus,
the carbon emissions of countries can be given by
X X
QPtj ¼ sCj;e je;i;t Ei;tj ð6:14Þ
e i

where QPtj denotes the carbon emissions of country j in step t; sCj;e denotes the
carbon intensity of energy e in country j. In this study, fossil energy comprises oil,
coal and gas, and their ratios are obtained by fitting the energy consumption data
from EIA.
In addition, the carbon emissions from land use change must also be considered
in the accounting of global carbon emissions.
J
X
Qt ¼ QPtj þ QLt0 ð1 % cle Þt ð6:15Þ
j

where Qt is the global carbon emissions in step t; QLt0 denotes the initial value of
global carbon emissions from land use change; cle denotes the yearly decay rates of
global carbon emissions from land use change.
According to Wu et al. (2014), the Svirezhev carbon-cycle model (S-N model)
which contains a terrestrial ecosystem turns out to be superior to the solo-reservoir
and three-reservoir models of DICE/RICE in terms of a much more detailed model
mechanism and more accurate modeling performance. Thus, the Svirezhev
carbon-cycle model is adopted in CIECIA. The S-N model divided the carbon-cycle
process into the terrestrial carbon cycle, ocean carbon cycle and atmospheric carbon
cycle, among them, the terrestrial carbon is shared between two compartments:
biota (vegetation) and pedosphere (soils). The changes in atmospheric carbon
content can be given by
Wt ¼ Wt%1 þ Qt % DVt % DSot % DOt ð6:16Þ

where Wt denotes the atmospheric carbon content in step t, DVt denotes the net
change of the amount of carbon in vegetation in step t; DSot denotes the net change
6.2 Model and Data Sources 95

of the amount of carbon in soils; DOt denotes the net change of the carbon content
in ocean.
According to Nordhuas and Yang (1996) and Pizer (1999), the climate damage
function which reflects the economic impact of climate change is given by

1 % b1; j lt j
Xij;t ¼ # $2 ð6:17Þ
1 þ D0; j T3t

where b1;j denotes the production damage coefficient of country j; D0;j is the GDP
loss from 3 °C of global warming; Tt is the global mean surface temperature in step
t, ltj denotes the carbon reduction rate of country j; 1 % b1; j li;tj denotes the eco-
nomic loss caused by the carbon abatement.

6.2.3 Technological Progress

Technology progress is an economic fact that needs to be considered in the research

of the long-term development problems. One of the most common results of
technological progress is the reduction of intermediate demand in the production
process.1 In this study, according to Lorentz and Savona (2008), a mechanism of
stochastic logarithmic shock is adopted for the changes of the coefficient of inter-
mediate demand ak;i; j;t .
lnða0k; j;i;t Þ ¼ lnða"k; j;i;t;n%1 Þ % ej;k;i;t;n ð6:18Þ

ej;k;i;t;n 2 Nð0; qt j Þ ð6:19Þ

where ej;k;i;t;n is a stochastic number following normal distribution Nð0; qt j Þ. A new

! 0 0
"
set of coefficients a1; j;i;t ; . . .; aI; j;i;t is generated after one iteration of stochastic
shock. Then, the new set is accepted to replace the original one if the potential
P
unitary cost is lower than the original unitary cost Jk a"k; j;i;t;n%1 pi;t .
8! " J J
> P P
! " < a01; j;i;t ; . . .; a0I; j;i;t if a0k; j;i;t pi;t \ a"k; j;i;t;n%1 pi;t
a"1; j;i;t;n ; . . .; a"I; j;i;t;n ¼ ! " k k
>
: a" "
1; j;i;t;n%1 ; . . .; aI; j;i;t;n%1 Otherwise

ð6:20Þ

1
Technological progress here specifically refers to the process technological progress. Process
technological progress refers to the innovation of the production process, reflecting the reduction
of unitary intermediate cost. Although this concept of process technological progress ignores
revolutionary product innovation, it accords more with the history of economic development.
96 6 CIECIA

To overcome the uncertainty caused by the contingency in the process of

technological progress, there are! 1000 iterations of
" stochastic shock in one
step. After the 1000th iteration, a"1; j;i;t;n ; . . .; a"I; j;i;t;n is introduced in the pro-
duction function for the next step. The variance qtj
of stochastic shock determines
the pace of technological progress. In this study, it is assumed that the ratio of
knowledge capital in the total capital of one country affects the rate of process
technological progress.

Ztj
qtj ¼a q
þ bq þ cqj;t ð6:21Þ
Ztj þ Ktj

where qtj depicts the possibility of technological progress; aq , bq , cqj;t are the
parameters in the function. Among them, cqj;t is an adjustment to the rate of process
technological progress of country j. In Eq. 6.21, the possibility of technological
progress increases with the ratio of knowledge capital. Thus the endogenous
mechanism of technological progress is formed, for the knowledge capital is
endogenous.
This mechanism of technological progress reflects the mode of the evolutionary
economics of Nelson and Winter (1982). The technological progress confirmed by
Eq. 6.20 is not only a slow natural process but also the profit choices of firms. In
addition, it is influenced by stochastic interferences. It reflects a type of randomness
in the technological process itself so that the stochastic interference ej;k;i;t;n has a
normal distribution.

6.2.4 Data Sources

The primary source of the economic data of CIECIA including the initial GDPs,
gross outputs, capital stocks, intermediate input coefficients and energy intensities
of sectors and countries is GTAP-07 database (Narayanan and Walmsley 2008).
The populations of countries, as well as their growth rates are obtained from World
Population Prospects: The 2010 Revision (United Nations Department of
Economic and Social Affairs 2011). The values of the parameters about the
knowledge capital are cited from Wang et al. (2012), Zhang (2012) and Liu (2013).
The values of the parameters of the global carbon-cycle model are cited from
Svirezhev et al. (1999), Zhu (2012) and Wu et al. (2014). The parameters of the
damage function are cited from Nordhuas and Yang (1996), Pizer (1999) and Zhu
(2012). The carbon emissions and the carbon intensities of different types of energy
of countries are obtained from the website of EIA.2 The capital output elasticities of
sectors are calculated based on the added values and wages obtained from

2
EIA. http://www.eia.gov/.
6.2 Model and Data Sources 97

Table 6.1 The capital output elasticities of sectors

Sector The capital output elasticity
Agriculture 0.2512
Food processing 0.4514
Energy 0.5997
Metal and other minerals 0.4601
Light manufacturing 0.4104
Chemical industry 0.5166
Heavy manufacturing 0.3942
Construction 0.3515
Trade and business services 0.4914
Transport and communication 0.5217
Insurance and finance services 0.5858
Other services 0.4705

Table 6.2 Parameter of the relationship between Tech-shock and knowledge Capital (1 ' 10−5)
CHN USA JPN EU IND RUS ODC HDC MDC LDC
cqj;t 2.7486 3.1119 −1.8432 2.0534 0.4239 2.4382 −0.4171 −5.5618 −0.5761 −2.3780

GTAP-07 (Table 6.1). The other main parameters values and initial values are listed
in Appendix A.
In addition, in Eq. 6.20, the values of aq and bq are 5.2298 ' 10−3 and
1.0499 ' 10−4 respectively. Table 6.2 presents the values of cqj;t . In the regres-
sion analysis of Eq. 6.20, R2 is 0.8740, and the t statistics of the two parameters are
−2.89 and 7.75 respectively. The hypothesis of Eq. 6.20 passes the test.
For simplification, this study merges 57 sectors of GTAP07 into 12, comprising
Agriculture, Food Processing, Energy, Metal and other Minerals, Light
Manufacturing, Chemical industry, Heavy Manufacturing, Construction, Trade and
Business Services, Transport and Communication, Insurance and Finance Services
and Other Services after considering their energy consumptions and supply char-
acteristics. CIECIA divided the world into 10 countries/regions, comprising China
(CHN, for short), the United States (USA), Japan (JPN), the European Union (EU),
Russia (RUS), India (IND), Other developed countries (ODC), High developing
countries (HDC), Middle developing countries (MDC), and Low developing
countries (LDC), as the same as MRICES-2012. One step is chosen to be one year
in this study.

6.3 Calibration

Table 6.3 presents the comparison of the GDP of various countries from 2007 to
2011 between the real data obtained from the EIA and the simulation outcomes. In
the regression analysis, the correlation coefficient between these two sets of data is
 98

Table 6.3 Calibration of GDP (109US Dollars, in constant 2006 prices)

CHN USA JPN EU IND RUS ODC HDC MDC LDC
EIA Data 2007 2904.59 13206.27 4753.29 14630.98 1004.75 896.86 4696.43 5286.00 1524.96 681.44
2008 3183.35 13161.99 4697.59 14659.69 1054.31 943.92 4772.28 5478.94 1603.04 720.78
2009 3476.64 12757.97 4401.00 14041.82 1150.31 870.16 4726.01 5369.07 1632.14 750.63
2010 3839.6 13063.13 4581.92 14304.81 1251.6 905.27 4949.91 5667.84 1719.34 793.15
2011 4195.03 13299.01 4572.66 14535.3 1342.96 941.79 5090.65 5897.61 1796.00 831.85
Simulating 2007 3128.55 13782.35 4235.96 15819.02 1136.21 1145.9 4971.62 5832.73 2030.99 719.11
outcomes 2008 3476.32 14033.49 4260.99 16031.54 1209.26 1188.26 5060.58 5928.71 2183.86 754.29
2009 3838.23 14301.29 4281.13 16245.66 1286.92 1234.45 5154.92 6142.90 2350.95 788.71
2010 4217.85 14572.06 4301.49 16465.88 1369.11 1282.07 5251.04 6364.03 2523.48 825.55
2011 4618.25 14846.01 4322.48 16692.36 1456.22 1331.21 5349.38 6593.69 2702.68 864.96
6 CIECIA
6.3 Calibration 99

Table 6.4 Calibration of current account balance percent of GDP (%)

CHN USA JPN EU IND RUS ODC HDC MDC LDC
IMF Data 2007 10.13 −5.06 4.82 −0.56 −0.70 5.93 3.15 4.03 0.74 2.25
2008 9.12 −4.74 3.22 −1.02 −1.99 6.25 2.18 3.97 −1.01 0.14
2009 5.23 −2.70 2.82 −0.09 −2.83 4.05 3.00 0.96 −0.32 −2.25
2010 5.19 −3.24 3.59 −0.14 −2.62 4.81 3.04 1.67 −0.68 −0.44
2011 5.16 −3.10 2.51 −0.18 −2.18 5.52 2.73 2.33 −1.00 1.10
Simulating 2007 9.90 −4.80 3.67 −0.71 −0.75 3.63 1.43 3.03 0.57 2.41
outcomes 2008 9.02 −4.75 3.78 −0.72 −1.10 3.54 1.59 3.12 0.01 1.80
2009 8.17 −4.59 3.79 −0.70 −1.42 3.71 1.65 2.99 −0.52 1.47
2010 7.38 −4.42 3.81 −0.67 −1.71 3.92 1.70 2.84 −0.99 1.19
2011 6.66 −4.25 3.83 −0.64 −1.98 4.12 1.75 2.70 −1.43 0.93

0.9971; R2 reaches 0.9941; P-value equals 0. In the Z-test, the Z value of these two
sets of data is 0.47, lower than its one-tail threshold 1.64 and two-tail threshold 1.96.
In ANOVA, the F value is 0.2248, lower than 1.6, the F-value upper bound in the
case of the 50 ' 50 sample size and 0.05 significance level. The calibration results
demonstrate that the outcomes can reflect the economic growth trends exactly.
Table 6.4 presents the comparison of the Current Account (preset of GDP) of
countries from 2007 to 2011 between the real data from IMF and the simulating
results. The current account balance indicates the difference between a country’s
savings and its investment. If the current account balance is positive, it measures the
portion of a country’s saving invested abroad. The correlation coefficient between
these two sets of data is 0.9273 in the regression analysis, and R2 equals 0.86 and
P-value equals 0. The Z value obtained in the Z-test is 0.0345, and the F-value from
ANOVA is 0.0012. Although the correlation of the current account (present of
GDP) is lower than that of GDP, it still higher than 0.9, and the results of the Z-test
and ANOVA are both satisfactory. Thus, CIECIA is able to reflect the international
capital flow well.
Table 6.5 presents the comparison of carbon emissions of countries from 2007
to 2011 between the real data from the EIA and the simulating results. The cor-
relation coefficient between these two sets of data from the regression analysis is
0.9969, R2 is 0.9939, and the P value is 0. Z from the Z-test is 0.0073 and F from
ANOVA is 0. The Calibration results demonstrate that the carbon emissions of
countries from the simulating outcomes agree with the real data well, depicting the
trends of carbon emissions exactly under natural conditions.

6.4 Assessments of Global Cooperating Abatement

Schemes

In the aspect of the assessment of the global abatement scheme, three principles,
comprising effectiveness, feasibility and fairness should be followed for planning a
reasonable global abatement scheme (Wang et al. 2014).
 100

Table 6.5 Calibration of carbon emissions (MtC)

CHN USA JPN EU IND RUS ODC HDC MDC LDC
EIA Data 2007 1725.37 1643.53 342.12 1161.18 372.60 431.08 613.02 1150.05 527.10 143.01
2008 1823.09 1593.98 331.71 1143.07 401.39 448.80 613.53 1197.25 552.39 146.42
2009 2065.47 1482.35 301.34 1054.52 435.75 423.97 610.26 1171.02 560.04 141.44
2010 2181.01 1537.29 321.76 1074.61 436.70 447.90 643.38 1230.35 574.05 144.49
2011 2376.90 1497.44 321.99 1046.88 470.66 487.67 643.43 1307.98 585.00 147.10
Simulating 2007 1736.82 1847.02 1959.62 2069.73 2185.57 1736.82 1847.02 1959.62 2069.73 2185.57
outcomes 2008 1626.44 1612.77 1605.22 1586.51 1573.70 1626.44 1612.77 1605.22 1586.51 1573.70
2009 339.22 331.64 325.76 318.44 310.34 339.22 331.64 325.76 318.44 310.34
2010 1144.60 1129.95 1118.02 1115.05 1102.96 1144.60 1129.95 1118.02 1115.05 1102.96
2011 375.82 394.29 412.54 432.09 453.15 375.82 394.29 412.54 432.09 453.15
6 CIECIA
6.4 Assessments of Global Cooperating Abatement Schemes 101

The effectiveness of the abatement scheme refers to that the controlling target of
the global mean surface temperature should be satisfied. The Copenhagen
Consensus agrees to hold the increase in the global temperature below 2 °C before
2100. Meanwhile, according to Stern (2007), the atmospheric concentration
equivalent of CO2 should be controlled at the range of 450–500 ppmv. The fea-
sibility refers to the possibility that the scheme could be accepted by the partici-
pating countries. From the perspective of climate ethics, it is believed that a feasible
global abatement scheme needs to realize the Pareto improvement of the economic
benefits of all of the participating countries, that is, the abatement scheme needs to
guarantee that all of the participating countries benefit from carbon abatement
activities, otherwise, global abatement cooperation will be impossible.
According to Santon et al. (2009), a global abatement scheme should consider
not only its influences on developed countries but also the developments of
developing countries, as well as the survivals of their people, i.e. the fairness of the
scheme. It is difficult to determine the fairness of the scheme directly. To fully
consider the fairness of the abatement schemes, this study divided the fairness into
two types, the fairness of carbon emission permit allocation and the fairness of
economic influences of the abatement scheme on countries.
In this section, the rising of the global mean surface temperature, and the eco-
nomic developments and carbon emissions of countries in the non-abatement
scenario (Scheme 0) are presented firstly. Then, six important global cooperating
carbon abatement schemes are simulated, assessed and compared with each other
based on Scheme 0. In this section, all of the abatement schemes are implemented
from 2016, and the target years are 2050 and 2100.

6.4.1 The Non-Abatement Scheme

In Scheme 0, the global mean surface temperature increases by 3.16 °C in 2100

from the pre-industrial level, exceeding the 2 °C global warming target of the
Copenhagen Consensus. In fact, the atmospheric concentration equivalent of CO2
reaches 638 ppmv in 2100 under Scheme 0. Figure 6.1a, b present the accumulated
utilities and the accumulated utilities per capital of countries respectively. It
demonstrates that the accumulated utility of China increases fast, having exceeded
the USA before 2075; the accumulated utilities from 2007 to 2100 of the USA, EU
and HDC are similar to each other; Japan and Russia have lower accumulated
utilities because of their smaller populations in future. In terms of per capita, all of
the developed countries maintain high level of accumulated utilities per capital
during the simulation; the accumulated utility per capital of China from 2007 to
2100 is only 251.23 thousand dollars (in constant 2005 prices), less than one half of
the USA’s accumulated utility per capital from 2007 to 2100; the accumulated
utilities per capital of India and LDC are only 98.44 and 33.90 thousand dollars.
Thus, in terms of accumulated utility per capita, the development of the world will
still be imbalanced in the future.
102 6 CIECIA

(a) 350
2007-2025
2007-2050

Accumulated Utility (Tillion US Dollars)

300
2007-2075
2007-2100
250

200

150

100

50

0
CHN USA JPN EU IND RUS ODC HDC MDC LDC

(b) 700
2007-2025
2007-2050
Cumulative Utility per capita (Thousand US

600
2007-2075
2007-2100
500

400
Dollars)

300

200

100

0
CHN USA JPN EU IND RUS ODC HDC MDC LDC

(c) 400
2007-2050
Accumulated Carbon Emissions per capita (tC)

350 2007-2100

300

250

200

150

100

50

0
CHN USA JPN EU IND RUS ODC HDC MDC LDC
 6.4 Assessments of Global Cooperating Abatement Schemes 103

JFig. 6.1 a Accumulated utilities of countries in Scheme 0 (trillion US dollars in con-

stant 2005 prices). b Accumulated utilities per capita of countries in Scheme 0 (thousand US
dollars in constant 2005 prices). c Accumulated carbon emissions per capita of countries in
Scheme 0 (tC)

Figure 6.1c depicts the accumulated carbon emissions per capita of countries
from 2007 to 2050 and 2100 in Scheme 0. Among them, Russia has the largest
accumulated carbon emissions per capita because of its relatively high output of the
energy sector and low population numbers. The accumulated carbon emissions per
capita of the USA from 2007 to 2100 are 300tC, lower than Russia’s. The accu-
mulated carbon emissions per capita of China by 2100 reach 250tC because of its
relatively fast developing speed and high carbon intensity. The accumulated carbon
emissions per capita of India and the LDC in Scheme 0 rank lowest because of their
quite limited economic aggregates.
In the non-abatement scenario, the global carbon emissions increase continually
during the simulation. In the year 2100, the global emissions of CO2 will be
60.34GtCO2. The changing trend of the global carbon emissions in Scheme 0 is
located in the range of the baseline in IPCC-AR5 (IPCC 2014) under the
assumption of the default growth, a bit lower than its average level.

6.4.2 Stern Scheme

Stern (2006) considered that the mitigation solution should be adopted immediately
to reduce the emissions of carbon dioxide and other GHGs. The main target of Stern
Scheme is 50% global carbon emission reductions by 2050, including 80%
reductions by the developed countries by 2050. In this section, the Stern Scheme is
completed and simulated based on CIECIA. The abatement targets of countries in
different periods are listed in Table 6.6. For convenience, the Stern Scheme is
referred to as Scheme 1.
In Scheme 1, the global carbon emissions in 2100 increase to 2.90GtC, meeting
the target of 50% reduction. The global mean surface temperature increases by
1.82 °C from the pre-industrial level and the atmospheric concentration equivalent
of CO2 reaches 444.51 ppmv in 2100, meeting both the global warming target and
the GHG concentration target. Thus, Scheme 1 is an effective global cooperating
abatement scheme.
Figure 6.2a depicts the accumulated carbon emissions per capital of countries in
Scheme 1. It can be seen that although the reduction targets of the developed
countries are higher than those of the developing countries, the reduction rate of
accumulated carbon emissions per capital by 2100 of developing countries e.g.
China and India are much higher than those of the developed countries. The
accumulated carbon emissions per capital of India decrease from 111.22tC in
Scheme 0 to 82.17tC in Scheme 1, whereas the reduction rates of the USA and
Japan are lower than 50%. That is mainly because that the emissions of developed
104 6 CIECIA

Table 6.6 Reduction targets of countries in Scheme 1

By 2050 By 2100 Carbon Carbon
permits permits
2007–2050 2007–2100
(GtC) (GtC)
CHN 50% reduction based on 2005 50% reduction 77.75 105.50
level based on 2050
level
USA 80% reduction based on 1990 50% reduction 44.68 54.92
level based on 2050
level
JPN 80% reduction based on 1990 50% reduction 8.50 10.36
level based on 2050
level
EU 80% reduction based on 1990 50% reduction 31.87 39.92
level based on 2050
level
IND 30% reduction based on 2005 50% reduction 17.41 25.81
level based on 2050
level
RUS 70% reduction based on 1990 50% reduction 15.73 21.88
level based on 2050
level
ODC 80% reduction based on 1990 50% reduction 17.08 19.81
level based on 2050
level
HDC 60% reduction based on 1990 50% reduction 39.89 52.93
level based on 2050
level
MDC 30% reduction based on 2005 50% reduction 24.22 37.17
level based on 2050
level
LDC Start reduction from 2040; Maintain 13.66 60.26
maintain 2040’s emission level 2050’s
between 2041 and 2050 reduction rate

countries present a downward trend from approximately 2010, whereas the energy
demands of developing countries such as China will still increase after 2010
because of their industrializations. This demonstrates that Scheme 1 is unfair in the
assignment of reduction tasks of countries. Considering that China, India and
Russia are the main manufacturing forces in the world, this economic shock may
have negative effect on the global economy, because it is hard to image a world
lacking in manufacturing.
Figure 6.2b depicts the changing rates of the accumulated utility of the world
and the countries from Scheme 0 to Scheme 1. Influenced by the implementations
of this abatement scheme, the accumulated utilities of countries suffer before 2050
except the LDC having no abatement task before 2040. However, along with the
6.4 Assessments of Global Cooperating Abatement Schemes 105

(a) 200
2007-2050
180 2007-2100

Accumulated Carbon Emissions per capita (tC)

160

140

120

100

80

60

40

20

0
CHN USA JPN EU IND RUS ODC HDC MDC LDC

(b) 4 2007-2025
2007-2050
2007-2075
3 2007-2100
2007-2025 Global
2007-2050 Global
2
2007-2075 Global
2007-2100 Global
1
(%)

-1

-2
CHN USA JPN EU IND RUS ODC HDC MDC LDC

Fig. 6.2 a Accumulated carbon emissions per capita of countries in Scheme 1 (tC). b Changing
rates of accumulated utility in Scheme 1 (%)

control of global warming after 2050, the accumulated utilities of countries improve
from the same steps in Scheme 0 by the climate welfare. In Scheme 1, the improve
rates of developed countries are higher than those of developing countries obvi-
ously, which means that Scheme 1 is unfair to the developing countries and the
developed countries benefit more from Scheme 1.

6.4.3 Norhaus Scheme

Because of the unfairness and unreasonableness of the Stern Scheme, Nordhaus

(2008) proposed that global carbon emissions should be reduced step by step,
106 6 CIECIA

instead of the radical abatement schemes. According to the assumption of

Nordhaus, the world has a target of 25% global carbon emission reductions by
2050. The developed countries have a target of 80% reductions by 2050, the same
as Scheme 1, and the developing countries cut their emissions appropriately. The
reduction targets of countries in Nordhaus Scheme (Scheme 2 for short) are listed in
Table 6.7.
In Scheme 2, the global carbon emissions increase to 4.55GtC in 2050, meeting
the abatement target of 25% global reduction by 2050. In 2100, global mean surface
temperature increases by 1.98 °C, and the atmospheric concentration equivalent of
CO2 reaches to 462.51 ppmv, meeting the climate mitigation targets by 2100. Thus,
Scheme 2 is also an effective global cooperating abatement scheme.

Table 6.7 Reduction targets of countries in Scheme 2

By 2050 By 2100 Carbon Carbon
permits permits
2007–2050 2007–2100
(GtC) (GtC)
CHN Reduce to 2006 level by 2030; 50% reduction 83.36 143.63
Maintain 2006’s emission level based on 2050
from 2031o 2050 level
USA 80% reduction based on 1990 50% reduction 44.68 54.92
level based on 2050
level
JPN 80% reduction based on 1990 50% reduction 8.50 10.36
level based on 2050
level
EU 80% reduction based on 1990 50% reduction 31.87 39.92
level based on 2050
level
IND Maintain 2015’s emission level 50% reduction 23.15 43.42
based on 2050
level
RUS 70% reduction based on 1990 50% reduction 15.73 21.88
level based on 2050
level
ODC 80% reduction based on 1990 50% reduction 17.08 19.81
level based on 2050
level
HDC 60% reduction based on 1990 50% reduction 41.47 57.76
level based on 2050
level
MDC Maintain 2015’s emission level 50% reduction 30.99 57.98
based on 2050
level
LDC Start reduction from 2040; Maintain 13.67 60.08
maintain 2040’s emission level 2050’s
between 2041 and 2050 reduction rate
6.4 Assessments of Global Cooperating Abatement Schemes 107

Figure 6.3a presents the accumulated carbon emissions per capita of countries in
Scheme 2. Under this scheme, the accumulated carbon emissions per capita of
developing countries increase obviously by 2100 compared with those in
Scheme 1. Among them, the 2007–2100 accumulated carbon emissions per capita
of China reach 115.76tC, having a one-half reduction compared with that of
Scheme 0. The accumulated carbon emissions per capita of India and the MDC
from 2007 to 2100 increase to 29.02 and 48.96tC respectively, both higher than
those of the Stern Scheme. That means the developing countries obtain more carbon
permits in Scheme 2; thus, Scheme 2 benefits the developing countries more.

(a) 200
2007-2050
2007-2100
Accumulated Carbon Emissions per capita (tC)

180

160

140

120

100

80

60

40

20

0
CHN USA JPN EU IND RUS ODC HDC MDC LDC

(b) 3
2007-2025
2007-2050
2007-2075
2 2007-2100
2007-2025 Global
2007-2050 Global
2007-2075 Global
2007-2100 Global
1
(%)

-1

-2
CHN USA JPN EU IND RUS ODC HDC MDC LDC

Fig. 6.3 a Accumulated carbon emissions per capita of countries in Scheme 2 (tC). b Changing
rates of accumulated utility in Scheme 2 (%)
108 6 CIECIA

Figure 6.3b presents the rates of change in the accumulated utility of the world
and countries from Scheme 0 to Scheme 2. The increasing rates of 2007–2100
accumulated utility of developing countries are higher than developed countries,
which further indicates that Scheme 2 benefits the economies of the developing
countries more. The increasing rate of accumulated utility of the MDC from 2007 to
2100 is 0.88%, in the second place in the ranking; China has the third highest
increasing rate of accumulated utility by 2100, after LDC and MDC.
However, the changing rates of the accumulated utility of Russia by 2100 are
both negative in Schemes 1 and 2, which means that these two abatement schemes
will cause losses for the economy of Russia which cannot be offset only by the
climate welfare. Thus, Schemes 1 and 2 are not feasible and cannot be accepted by
all of the participating countries.

6.4.4 Principle of Convergence on Carbon Emissions

Per Capita

Many scholars have proposed that fairness for emission reduction is to converge the
carbon emissions per capita. He (2004) considered that equality of global per capita
emissions should be taken as the standard for the fairness principle of the carbon
permit allocation of countries. The principle of per capita reflects the equal rights of
human survival, development and usage of natural resources. Based on the principle
of abatement task sharing, the basic idea of the carbon emissions per capita con-
vergence scheme (Scheme 3) is that the developed countries cut their emissions per
capita gradually from 2016 while the developed countries increase their emissions
per capita, and the carbon emissions per capita of all of the countries converges to a
unique value by the target year. In consideration of the abatement restrict in 2050,
the detailed global abatement scheme is listed in Table 6.8.
The global carbon emissions in 2050 increase to 3.63GtC in Scheme 3, between
Schemes 1 and 2. In 2100, the global mean surface temperature increases by 1.98 °C,
and the atmospheric concentration equivalent of CO2 is 469.04 ppmv, meeting the
climate mitigation targets by 2100.
Figure 6.4a demonstrates that the carbon emissions per capita of all of the
countries, including LDC, converge to 0.5tC in 2100, realizing the convergence of
carbon emissions per capita by the target year. Figure 6.4b presents the accumu-
lated carbon emissions per capita of countries. In Scheme 3, the accumulated
carbon emissions per capita of India, HDC, MDC and LDC are all higher than those
in Schemes 1 and 2, whereas the accumulated carbon emissions per capita of China
and Russia are lower than those in Scheme 2. That means China benefits less from
Scheme 3 in the actual conditions and the developing trends.
Figure 6.4c depicts the changing rates of accumulated utility of the world and
the countries in Scheme 3 relative to Scheme 0. The accumulated utilities of China
and Russia decline obviously compared with those in Schemes 1 and 2. The
6.4 Assessments of Global Cooperating Abatement Schemes 109

Table 6.8 Reduction targets of countries in Scheme 3

By 2050 By 2100 Carbon Carbon
permits permits
2007–2050 2007–2100
(GtC) (GtC)
CHN 68% reduction based on Maintain 2050’s emission 72.89 96.62
2005 level level
USA 85% reduction based on Maintain 2050’s emission 43.39 53.56
1990 level level
JPN 82% reduction based on Maintain 2050’s emission 8.40 10.62
1990 level level
EU 79% reduction based on Maintain 2050’s emission 32.03 43.27
1990 level level
IND Start reduction from 2023; Maintain 2050’s emission 29.55 66.88
maintain 2023’s emission level
level between 2024 and
2050
RUS 94% reduction based on Maintain 2050’s emission 13.72 16.38
1990 level level
ODC 80% reduction based on Maintain 2050’s emission 17.24 21.33
1990 level level
HDC 43% reduction based on Maintain 2050’s emission 42.62 67.69
1990 level level
MDC Reduce to 2012’s emission Maintain 2050’s emission 29.84 62.87
level
LDC No abatement task Start reduction from 2096; 14.67 81.45
maintain 2096’s emission
level between 2097 and
2100

accumulated utility changing rate of China is estimated to be only 0.02% by 2100,

and the changing rate of Russia decrease to −0.86%. India can benefit most in
Scheme 3. The changing rate of India’s accumulated utility reaches to 1.44%, much
higher than those of most of the other countries.
Those countries that have large population bases and relatively low capital
emission demands per capita will benefit from Scheme 3. In addition, developed
countries with higher decrease rates of carbon intensity e.g. the EU and Japan will
not suffer great loss in this scheme. However, countries that have higher initial
capital emissions per capita and faster decline rates of population (according to
UNDESA, China will meet its population peak approximately 2030) will lose their
development chances. Scheme 3 avoids the historic responsibilities of the devel-
oped countries in the carbon emission problem, unable to control the carbon
emissions of the developed countries well. Instead, it brings harm to important
economies such as China and Russia. Thus, Scheme 3 is not feasible.
110 6 CIECIA

(a) 0.6
2050 2100

0.5

Carbon emissions per capita (tC) 0.4

0.3

0.2

0.1

0
CHN USA JPN EU IND RUS ODC HDC MDC LDC

(b) 180
2007-2050
Accumulated Carbon Emissions per capita (tC)

160 2007-2100

140

120

100

80

60

40

20

0
CHN USA JPN EU IND RUS ODC HDC MDC LDC

(c) 4
2007-2025
2007-2050
2007-2075
3 2007-2100
2007-2025 Global
2007-2050 Global
2007-2075 Global
2 2007-2100 Global
(%)

-1

-2
CHN USA JPN EU IND RUS ODC HDC MDC LDC

Fig. 6.4 a Carbon emissions per capita of countries in Scheme 3 (tC). b Accumulated carbon
emissions per capita of countries in Scheme 3 (tC). c Changing rates of accumulated utility in
Scheme 3 (%)
6.4 Assessments of Global Cooperating Abatement Schemes 111

6.4.5 Principle of Convergence on Accumulated Carbon

Emissions Per Capita

The principle of convergence on accumulated carbon emissions per capita, in which

the accumulated carbon emissions per capita of countries are converged by the
target year 2100, was primarily proposed by scholars from developing countries
including Ding et al. (2009). It emphasizes the fairness of the carbon abatement
from the perspective of historic carbon emissions. Under the principle of conver-
gence on accumulated carbon emissions per capita, the developed countries will
have heavy reduction tasks in the short or medium term, for realizing the emission
routs under the global long-term reduction target and setting apart necessary
development spaces for the developing countries. In this study, three accumulated
carbon emissions per capita convergence schemes with different start years of
emission accumulation (2007, 2000 and 1990) are assessed: Schemes 4a, 4b and
4c. The target year of these three schemes are all 2100. The detailed reduction
targets of countries are listed in Table 6.9.
In these three schemes, the global mean surface temperature in 2100 increases by
1.98 °C in Scheme 4a, 1.99 °C in Scheme 4b and 1.99 °C in Scheme 4c respec-
tively. The atmospheric concentration equivalent of CO2 in 2100 is 465.88 ppmv in
Scheme 4a, 472.01 ppmv in Scheme 4b and 474.50 ppmv in Scheme 4c. All of
these three schemes are effective for meeting the climate mitigation targets by 2100.
Figure 6.5a–c present the accumulated carbon emissions per capital of countries
in these three schemes respectively. In Scheme 4a, the accumulated carbon emis-
sions per capital of countries from 2007 to 2100 all reach 67.5tC except LDC. In
Scheme 4b, the accumulated carbon emissions per capital of countries from 2000 to
2100 converge to 78tC except for the USA and LDC. Although the USA realizes
100% reductions from 2016 in Scheme 4b, its accumulated emissions per capital of
countries from 2000 to 2100 are still higher than those of the other countries. In
Scheme 4c, the USA and ODC achieve 100% reductions from 2016; Japan and the
EU should reach 100% reductions before 2050; the accumulated carbon emissions
per capita of the other countries except LDC converge to 87tC. For the developed
countries, Schemes 4b and 4c require 100% reductions in a short time, which cause
difficulties for the implementation of the schemes.
Figure 6.6a–c depict the changing rates of the accumulated utility of the world
and countries in the three schemes, respectively, relative to Scheme 0. In
Scheme 4a, India, HDC and MDC have the highest changing rates compared with
those in Schemes 1, 2 and 3. The changing rates of the accumulated utility of India
is 2.71% by 2100. Although the changing rate of HDC by 2100 is negative, it is still
much higher than those in the schemes assessed previously. The changing rates of
the accumulated utility of China, Russia and the developed countries in Scheme 4a
decrease obviously. The changing rate of the accumulated utility of China is less
than 0.01% by 2100, and the USA’s even turns to the negative.
Along with the moving of the start year of accumulation to 2000, the accu-
mulated utilities of India and MDC increase. In Scheme 4c, the changing rate of the
Table 6.9 Reduction targets of countries in Scheme 4
112

Scheme Country/region By 2050 By 2100 Carbon permits Carbon permits

2007–2050 (GtC) 2007–2100 (GtC)
Scheme 4a CHN 71% reduction based on 2005 level 50% reduction based 72.08 88.10
on 2050 level
USA 95% reduction based on 1990 level by 2020; maintain 50% reduction based 19.19 21.50
2020’s emission level between 2021 and 2050 on 2050 level
JPN 96% reduction based on 1990 level 50% reduction based 7.79 8.18
on 2050 level
EU 91% reduction based on 1990 level 50% reduction based 29.69 33.23
on 2050 level
IND Start reduction from 2048; maintain 2048’s emission 50% reduction based 43.37 104.95
level between 2049 and 2050 on 2050 level
RUS 97% reduction based on 1990 level by 2030; maintain 50% reduction based 8.36 9.18
2030’s emission level between 2031 and 2050 on 2050 level
ODC 94% reduction based on 1990 level by 2030; maintain 50% reduction based 10.41 11.27
2030’s emission level between 2031 and 2050 on 2050 level
HDC 37% reduction based on 2005 level 50% reduction based 45.83 71.16
on 2050 level
MDC Start reduction from 2028; maintain 2028’s emission 50% reduction based 41.00 81.10
level between 2029 and 2050 on 2050 level
LDC No abatement task No abatement task / /
(continued)
6 CIECIA
Table 6.9 (continued)
Scheme Country/region By 2050 By 2100 Carbon permits Carbon permits
2007–2050 (GtC) 2007–2100 (GtC)
Scheme 4b CHN 65% reduction based on 2005 level 50% reduction based 73.79 93.35
on 2050 level
USA 100% reduction from 2016 50% reduction based 14.13 14.13
on 2050 level
JPN 90% reduction based on 1990 level by 2035; maintain 50% reduction based 6.16 7.17
2035’s emission level between 2036 and 2050 on 2050 level
EU 96% reduction based on 1990 level 50% reduction based 28.87 30.73
on 2050 level
IND Start reduction from 2043; maintain 2043’s emission Maintain 2050’s 42.42 118.92
level between 2044 and 2050 emission level
RUS 99% reduction based on 1990 level by 2030; maintain 50% reduction based 7.90 8.10
2030’s emission level between 2031 and 2050 on 2050 level
ODC 93% reduction based on 1990 level by 2020; maintain 50% reduction based 7.66 8.67
2020’s emission level between 2021 and 2050 on 2050 level
HDC 30% reduction based on 2005 level 50% reduction based 47.09 75.03
on 2050 level
6.4 Assessments of Global Cooperating Abatement Schemes

MDC Start reduction from 2033; maintain 2033’s emission 50% reduction based 44.09 90.15
level between 2034 and 2050 on 2050 level
LDC No abatement task No abatement task / /
(continued)
113
Table 6.9 (continued)
114

Scheme Country/region By 2050 By 2100 Carbon permits Carbon permits

2007–2050 (GtC) 2007–2100 (GtC)
Scheme 4c CHN 61% reduction based on 2005 level 50% reduction based 74.78 96.39
on 2050 level
USA 100% reduction from 2016 50% reduction based 14.13 14.13
on 2050 level
JPN 100% reduction from 2036 50% reduction based 5.63 5.63
on 2050 level
EU 100% reduction from 2042 50% reduction based 23.74 23.74
on 2050 level
IND Start reduction from 2049; maintain 2049’s emission maintain 2050’s 43.05 129.56
level in 2050 emission level
RUS 100% reduction from 2018 50% reduction based 4.73 4.73
on 2050 level
ODC 100% reduction from 2016 50% reduction based 5.57 5.57
on 2050 level
HDC 35% reduction based on 2005 level 50% reduction based 46.19 72.27
on 2050 level
MDC Start reduction from 2028; maintain 2028’s emission Maintain 2050’s 40.96 94.79
level between 2029 and 2050 emission level
LDC No abatement task No abatement task / /
6 CIECIA
6.4 Assessments of Global Cooperating Abatement Schemes 115

(a) 80 2007-2050
2007-2100

Accumulated Carbon Emissions per capita (tC)

70

60

50

40

30

20

10

0
CHN USA JPN EU IND RUS ODC HDC MDC LDC

(b) 90 2007-2050
2007-2100
Accumulated Carbon Emissions per capita (tC)

80

70

60

50

40

30

20

10

0
CHN USA JPN EU IND RUS ODC HDC MDC LDC

(c) 160 2007-2050

2007-2100
Accumulated Carbon Emissions per capita (tC)

140

120

100

80

60

40

20

0
CHN USA JPN EU IND RUS ODC HDC MDC LDC

Fig. 6.5 a Accumulated carbon emissions per capita of countries in Scheme 4a (tC).
b Accumulated carbon emissions per capita of countries in Scheme 3 (tC). c Accumulated
carbon emissions per capita of countries in Scheme 4c (tC)
116 6 CIECIA

(a) 5
2007-2025
2007-2050
4 2007-2075
2007-2100
2007-2025 Global
3 2007-2050 Global
2007-2075 Global
2007-2100 Global
2
(%)

-1

-2

-3
CHN USA JPN EU IND RUS ODC HDC MDC LDC

(b) 5
2007-2025
2007-2050
4 2007-2075
2007-2100
2007-2025 Global
3 2007-2050 Global
2007-2075 Global
2007-2100 Global
2
(%)

-1

-2

-3
CHN USA JPN EU IND RUS ODC HDC MDC LDC

(c) 5
2007-2025
2007-2050
4 2007-2075
2007-2100
2007-2025 Global
3 2007-2050 Global
2007-2075 Global
2007-2100 Global
2
(%)

-1

-2

-3
CHN USA JPN EU IND RUS ODC HDC MDC LDC

Fig. 6.6 a Changing rates of accumulated utility in Scheme 4a (%). b Changing rates of
accumulated utility in Scheme 4b (%). c Changing rates of accumulated utility in Scheme 4c (%)
6.4 Assessments of Global Cooperating Abatement Schemes 117

accumulated utility of India by 2100 reaches to 3.38%, close to LDC which has no
abatement task, and the changing rate of MDC by 2100 increases to 2.20%.
Meanwhile, the changing rates of the accumulated utility of the developed countries
decrease generally. The changing rate of the EU by 2100 is only 0.51%, below the
global average level of 0.87% in Scheme 4c. The changing rates of the accumulated
utility of China and HDC increase slightly compared with Scheme 4a, along with
the moving of the start year.
From the perspective of global economic growth, the changing rates of the
global accumulated utility by 2025 are −0.27%, −0.34% and −0.38%, respectively,
in Schemes 4a, 4b and 4c, much lower than the other schemes. That indicates that
the carbon emission controls of the main economies in the early steps of Scheme 4
are overly strict so that the global economy suffers large losses and declines
significantly.
Scheme 4 benefits those countries with huge population bases and increasing
population trends, whereas the emissions of the developed countries are controlled
severely and their economic developments are affected seriously. Scheme 4 may
hurt the benefit of the global economy, resulting in economic setbacks for the
world. Thus, the feasibility of Scheme 4 is still questionable. In addition, although
the scholars of China support the principle of convergence on accumulated carbon
emissions per capita in the international climate conferences, China will not achieve
the development chances under this principle in the long run, even the star year of
accumulation is 1990, primarily because the population of China will decrease from
approximately 2030.

6.4.6 Global Economic Growth Scheme

To avoid the serious damages to the main economies of the world, Wang et al.
(2012) proposed that the carbon abatements should consider the steady growth of
the global economy. Both China and the USA are the main manufacturing countries
and the economic engines of the world. The overly stringent reduction tasks for
China and the USA may lead to global economic disasters. Thus, the carbon
emissions per capita of China and the USA should be allowed to be slightly higher
than those in other schemes. Meanwhile, the abatement tasks of the middle and low
developing countries should be reduced as little as possible, giving them adequate
development opportunities. Table 6.10 lists the abatement targets of countries in the
economic growth scheme (Scheme 5). The start year of abatement of LDC is
postponed until 2045 in Scheme 5.
In Scheme 5, the global carbon emission reaches to 3.88GtC in 2050, close to that
of Scheme 3. By 2100, the global mean surface temperature increases by 1.99 °C,
and the atmospheric concentration equivalent of CO2 is 467.26 ppmv, meeting the
climate mitigation targets by 2100.
Figure 6.7a depicts the accumulated carbon emissions per capita of countries in
Scheme 5. The accumulated carbon emissions per capita of China is 111.88tC by
118 6 CIECIA

Table 6.10 Reduction targets of countries in Scheme 5

By 2050 By 2100 Carbon Carbon
permits permits
2007–2050 2007–2100
(GtC) (GtC)
CHN 30% reduction based on 2005 Maintain 87.08 139.23
level 2050’s
emission level
USA 80% reduction based on 1990 20% reduction 44.68 57.03
level based on 2050
level
JPN 80% reduction based on 1990 20% reduction 8.50 10.74
level based on 2050
level
EU 80% reduction based on 1990 20% reduction 31.87 41.57
level based on 2050
level
IND Reduce to 2010 level Maintain 21.13 42.74
2050’s
emission level
RUS 60% reduction based on 1990 40% reduction 16.72 25.48
level based on 2050
level
ODC 80% reduction based on 1990 20% reduction 17.08 20.37
level based on 2050
level
HDC 50% reduction based on 1990 30% reduction 41.47 59.99
level based on 2050
level
MDC Reduce to 2010 level 30% reduction 28.79 54.28
based on 2050
level
LDC Start reduction from 2045; Maintain 14.31 69.25
maintain 2045’s emission level 2050’s
between 2046 and 2050 emission level

2100, close to those in Scheme 2. The accumulated carbon emissions per capita of
the developed countries, e.g., the USA and EU, increase obviously compared with
those in Scheme 2. In addition, the accumulated carbon emissions per capita of
Russia by 2100 increase to 203.12tC.
Figure 6.7b depicts the changing rates of accumulated utility of the world and
countries in Scheme 5 relative to Scheme 0. In Scheme 5, the changing rates of
accumulated utility are relatively equal among countries. China, India, MDC, the
EU, Japan and the ODC have almost the same changing rate by 2100. The changing
rate of Russia by 2100 is close to 0, higher than those changing rates in the other
schemes. However, the changing rate of accumulated utility of HDC by 2100 is still
negative in Scheme 5; thus, Scheme 5 still may not be accepted by all countries.
6.4 Assessments of Global Cooperating Abatement Schemes 119

(a) 250 2007-2050

2007-2100

Accumulated Carbon Emissions per capita (tC)

200

150

100

50

0
CHN USA JPN EU IND RUS ODC HDC MDC LDC

(b) 3.5
2007-2025
2007-2050
3 2007-2075
2007-2100
2.5 2007-2025 Global
2007-2050 Global
2 2007-2075 Global
2007-2100 Global
1.5
(%)

0.5

-0.5

-1

-1.5
CHN USA JPN EU IND RUS ODC HDC MDC LDC

Fig. 6.7 a Accumulated carbon emissions per capita of countries in Scheme 5 (tC). b Changing
rates of accumulated utility in Scheme 5 (%)

6.4.7 Pareto Improvement Scheme

From the perspective of welfare economics, Wang et al. (2014) noted that a global
abatement scheme will not be accepted by all of the cooperating countries unless it
can benefit all of the abatement participators. Such a type of scheme that can
improve the welfares of the participators is named the Pareto Improvement Scheme.
Pareto improvement refers to a type of social change to improve the social welfare
of some without harming the welfares of the others. The target of the Pareto
Improvement Scheme is to guarantee that the changing rates of the utility of all of
the countries are positive by 2100 on the premise that the climate mitigation targets
120 6 CIECIA

Table 6.11 Reduction targets of countries in Scheme 6

By 2050 By 2100 Carbon Carbon
permits permits
2007–2050 2007–2100
(GtC) (GtC)
CHN 25% reduction based on 2005 40% reduction 84.46 128.93
level based on 2050
level
USA 75% reduction based on 1990 40% reduction 45.92 59.60
level based on 2050
level
JPN 90% reduction based on 1990 40% reduction 8.05 9.04
level based on 2050
level
EU 95% reduction based on 1990 40% reduction 28.96 31.11
level based on 2050
level
IND Reduce to 2005 level 20% reduction 19.15 33.61
based on 2050
level
RUS 50% reduction based on 1990 40% reduction 17.71 28.65
level based on 2050
level
ODC 98% reduction based on 1990 70% reduction 15.90 16.13
level based on 2050
level
HDC 20% reduction based on 2005 20% reduction 49.08 87.72
level based on 2050
level
MDC 10% reduction based on 2005 20% reduction 26.00 46.09
level based on 2050
level
LDC Start reduction from 2045; Maintain 14.30 69.23
maintain 2045’s emission level 2050’s
between 2046 and 2050 emission level

by 2100 would be achieved. The detailed reduction targets of the Pareto

Improvement Scheme (Scheme 6) are listed in Table 6.11.
In Scheme 6, the global mean surface temperature increases by 1.97 °C in 2100
compared with the pre-industrial level, and the atmospheric concentration equiva-
lent of CO2 is 464.17 ppmv, meeting the climate mitigation targets by 2100. Thus,
Scheme 6 is effective. Figure 6.8a presents the accumulated carbon emissions per
capital of countries. The accumulated carbon emissions per capital from 2007 to
2100 of Russia and HDC increase to 230.49tC and 82.69tC respectively, and ODC
with higher changing rates of accumulated utility in Scheme 5 has an even more
stringent reduction task after 2050 in Scheme 6. That is the sacrificed part of the
fairness for Pareto improvement.
6.4 Assessments of Global Cooperating Abatement Schemes 121

(a) 250
2007-2050
2007-2100

Accumulated Carbon Emissions per capita (tC)

200

150

100

50

0
CHN USA JPN EU IND RUS ODC HDC MDC LDC

(b) 4
2007-2025
2007-2050
2007-2075
3 2007-2100
2007-2025 Global
2007-2050 Global
2 2007-2075 Global
2007-2100 Global
(%)

-1

-2
CHN USA JPN EU IND RUS ODC HDC MDC LDC

Fig. 6.8 a Accumulated carbon emissions per capita of countries in Scheme 6 (tC). b Changing
rates of accumulated utility in Scheme 6 (%)

Figure 6.8b depicts the changing rates of accumulated utility of the world and
countries in Scheme 6 relative to Scheme 0. It demonstrates that the accumulated
utility of all of the countries by 2100 are higher than those in Scheme 0, which
means the Pareto improvement of carbon abatement is realized in Scheme 6.
Meanwhile, except HDC and LDC, the changing rates of countries by 2100 are
almost equal. Thus, Scheme 6 can provide good fairness among countries in the
aspect of the economic influence of carbon abatement.
Schemes 5 and 6 are designed and improved based on Schemes 1 and 2.
Compared with Schemes 1 and 2, Schemes 5 and 6 consider the steady economic
growth of the world and development demands of the developing countries com-
prehensively and is more reasonable. Scheme 6 realizes the Pareto improvement of
accumulated utilities of all of the abatement participators, making it acceptable to
122 6 CIECIA

all countries. Thus, Scheme 6 is the most feasible global cooperating abatement
scheme at present.
Table 6.12 presents the effectiveness, fairness and feasibilities of schemes. In the
aspect of effectiveness, global warming by 2100 in the schemes are all below 2 °C,
and the atmospheric concentration equivalent of CO2 by 2100 are all controlled
below 500 ppmv. In the aspect of fairness, Schemes 3 and 4 with the principles of
convergence on carbon emissions per capita and convergence on accumulated
carbon emissions per capita respectively have the lowest Gini coefficients.
Schemes 5 and 6 have the third and fourth lowest Gini coefficients after Scheme 3
and 4. In the aspect of feasibility, the main economies, e.g., China, the USA and
Russia, suffer seriously under Schemes 3 and 4, which makes neither Scheme 3 nor
Scheme 4 feasible. The accumulated utility of HDC by 2100 in Scheme 5 is lower
than that in Scheme 0, which greatly reduces the feasibility of Scheme 5. The
Pareto improvement scheme is the only one that can improve the benefits of all of
the abatement participating countries and is thus most feasible. In summary,
although sacrificing some fairness, the Pareto Improvement Scheme, which was
developed from Scheme 5, is the most feasible scheme and is thus the most rea-
sonable global cooperating climate mitigation scheme.
Comparing the abatement schemes with the emission scenarios in IPCC-AR5,
the global carbon emissions of Schemes 1, 2, 3, 5 and 6 by 2020 are all located
around the lower bound of the range for the Cancun Agreement (30–33 GtCO2). In
Scheme 4, because of huge emission cuts of the developed countries in the initial
steps, the global carbon emissions in 2020 are relatively small, generally between
30 and 33GtCO2. In general, the global carbon emissions from 2010 to 2030 of
schemes in this study are close to the outcomes of OS/No Negative/Full scenario
categories (Categories 0–1) for meeting a goal of 450 ppmv by the end of the
century. From a long-term perspective, the global mean surface temperature in the
schemes increases between 1.8 and 2 °C in 2100, and the atmospheric concentra-
tion equivalent of CO2 by 2100 is located between 400 ppm and 435 ppm; the
global accumulated carbon emissions from 2010 to 2100 are between 1900 and
2100GtC. These outcomes are quite close to the Scenario Category 2 of IPCC-AR5.
Among them, the Stern Scheme is much closer to Category 1. In addition, the
abatement routs of the schemes in this study are quite close to those in the No
Negative scenarios of Category 1, i.e., huge emission cuts in the early steps and
gradually bringing down the mitigation rates in the later stages.
The changing rates of the global utility of schemes relative to Scheme 0 are
summarized in Fig. 6.9. It is easy to find that the scheme under the principle of
convergence on accumulated carbon emissions per capita (Scheme 4) obtains the
highest global accumulated utility from 2007 to 2100. However, this scheme hurts
the interests of the main economies in the world and has negative impacts on global
economic development in the short term. Thus, in the currently depressed eco-
nomic conditions, Scheme 4 is deprecated; although from a long-term perspective,
this scheme would benefit middle and low developing countries more and promote
the global economic development in the later period. This problem is worthy of
further research.
Table 6.12 Comparison of effectiveness, fairness and feasibility of schemes
Effectiveness Fairness Feasibility
Global Atmospheric concentration Gini coefficient of Gini coefficient of
warming by equivalent of CO2 by 2100 carbon emissions accumulated carbon emissions
2100 (°C) in 2100 between 1990 and 2100
Scheme 1 1.8213 444.51 0.2558 0.4078 Siding with the developed countries,
infeasible
Scheme 2 1.9842 462.69 0.2383 0.3857 The changing rates of accumulated utility
of Russia and HDC by 2100 are negative,
low feasibility
Scheme 3 1.9789 469.04 0.0000 0.3005 The interests of main economies, e.g.,
China and Russia, are damaged,
infeasible
Scheme 4a 1.9760 465.88 0.198 0.1974 The interests of main economies, e.g.,
China, the USA and Russia, are damaged,
infeasible
Scheme 4b 1.9998 472.01 0.2809 0.1813 The interests of main economies, e.g.,
China, the USA and Russia, are damaged,
6.4 Assessments of Global Cooperating Abatement Schemes

infeasible
Scheme 4c 1.9903 474.50 0.3207 0.1934 The interests of main economies, e.g.,
China, the USA and Russia, are damaged,
infeasible
Scheme 5 1.9884 467.26 0.2180 0.3760 The changing rates of accumulated utility
of HDC by 2100 are negative, low
feasibility
Scheme 6 1.9737 464.17 0.2755 0.3819 The accumulated utilities of all of the
countries increase, feasible
123
124 6 CIECIA

1 2007-2050 2007-2100

0.8

0.6

0.4

0.2
(%)

-0.2

-0.4

-0.6

-0.8

-1
Scheme 1 Scheme 2 Scheme 3 Scheme 4a Scheme 4b Scheme 4c Scheme 5 Scheme 6

Fig. 6.9 Changing rates of global accumulated utility in schemes (%)

6.5 Conclusions

This study has built a climate change integrated assessment model with global
economic interactions: CIECIA. The economic core of CIECIA is a
multi-country-sector general equilibrium model, and the climate model is based on
the Svirezhev carbon-cycle model. Endogenous technological progress and inno-
vation modes in the field of evolutional economics are introduced into CIECIA to
establish the endogenous mode of technological progress, in which the techno-
logical progress in the production process is driven by the accumulation of
knowledge capital. CIECIA overcomes the defects of ignoring global economic
interaction in traditional IAMs, ensuring that the global carbon abatements are
discussed and assessed under the condition of global economic general equilibrium.
Based on this model, six types of the main global cooperating climate mitigation
schemes are simulated, assessed and analyzed. The conclusions derived from the
scenario simulations are listed as follows.
1. All of the six types of schemes can achieve the climate mitigation targets by
2100. Thus, they are all effective schemes. There exist differences in the miti-
gation level of climate change among schemes. Except for Scheme 1, the other
schemes are relatively loose, and their global temperature increases by 2100
exceed 1.9 °C.
2. The economic growth of countries are influenced by the implementations of
carbon abatements in the early steps. However, after 2050, the economies
experience rapid growths because of the lower impact of climate change on
economic development. This is the climate welfare brought by carbon
abatement.
6.5 Conclusions 125

3. Among these schemes, Scheme 1 benefits the economic developments of the

developed countries more, and is unfair to the developing countries for its strict
emission reductions. Scheme 2 benefits the economies of developing countries
more, especially the middle and low developing countries. However, it has
negative influence on the economies of the developed countries, and is unable to
benefit all of the participating countries.
4. Scheme 3 benefits countries with huge population bases, e.g., the middle and
low developing countries, and fast technological progress. However, it hurts the
economies of countries with higher initial carbon emissions per capita, e.g.,
China and Russia. Although Scheme 4 is the fairest one, it damages the interests
of the main economies, e.g., China, the USA, and Russia, etc. and cannot be
accepted by all of the abatement participators. Thus, neither of these two
schemes are feasible because of the great impacts on the developments of the
main economies in the world.
5. Schemes 5 and 6 balance both fairness and feasibility, and have relatively equal
impacts on the economies among countries. Scheme 6 realizes the Pareto
improvement of the economies of countries in the process of carbon abatement,
improving the accumulated utilities between 2007 and 2100 of all of the
countries. Despite the sacrificing of some fairness, Scheme 6 can be accepted by
all of the reduction participating countries. Thus, Scheme 6 is the most rea-
sonable global cooperating climate mitigation scheme.
Most of the values of the parameters in this study are static except the techno-
logical shocks because of the limited space. It is worth noting that many parameter
values are controversial, including discount rates, time preferences, and deprecia-
tion rates. Even some components of IAM are controversial. For example, there
exist different types of the climate damage functions, e.g., the Nordhaus damage
function and Weitzman damage function (Weitzman 2009). In fact, we have con-
ducted sensitivity analyses of the parameters and the damage functions. This sec-
tion will be provided in our next paper. In addition, CIECIA is still a policy
evaluation IAM because of solving difficulties, and the commodity trading mech-
anism is relatively simple for model simplification. The focus of our further study is
to realize the optimization calculation and to depict the international commodity
flow accurately.
This work was supported by the State Key Development Program on Basic
Research of China, No. 2012CB955800

Appendix A. Main Parameters

See Appendix Tables A.1, A.2, A.3 and A.4.

 126

Table A.1 Initial output elasticities of knowledge capital, investing rates and initial knowledge capital stocks
CHN USA JPN EU IND RUS ODC HDC MDC LDC
bZj;2007 0.015 0.043 0.045 0.031 0.01 0.016 0.031 0.016 0.01 0.009
j 0.0141 0.0257 0.0332 0.0165 0.005 0.01 0.018 0.0014 0.0041 0.0016
g
j 162.34 1727.99 696.41 1240.03 24.3 14.03 1569.56 132.74 58.38 13.57
Z2007
Data source Liu (2013)
6 CIECIA
Appendix B. Changes of Industrial Structure of Countries 127

Table A.2 Production damage coefficients and global warming damage coefficients
CHN USA JPN EU IND RUS ODC HDC MDC LDC
D0;j 0.1371 0.0992 0.1057 0.1057 0.1371 0.7713 0.1057 0.1144 0.1371 0.115
b1;j 0.1 0.07 0.05 0.05 0.1 0.1 0.05 0.1 0.1 0.1
Data source Liu (2013)

Table A.3 Carbon intensities of coal, petro and gas (MtCO2/Mtoe)

CHN USA JPN EU IND RUS ODC HDC MDC LDC
sCj;coal 3.75 3.92 3.71 4.10 3.75 3.53 3.78 3.88 3.77 3.70
sCj;petro 2.47 2.69 2.30 2.61 2.44 2.33 2.36 2.69 2.80 2.85
sCj;gas 2.21 2.10 2.17 2.09 2.05 2.27 2.14 2.29 2.23 3.28
Data source GTAP-07

Table A.4 Other main parameters

Parameter Value Description Source
/ 0.04 Output elasticity of investment Jin (2012)
h 1 Constant substitution elasticity in compound Jin (2012)
functions of consumption, investment and
price
q 0.198 Time preference Wang et al. (2006)
b 0.015 Discounting rate Buchner and Carraro
(2005) and Wang et al.
(2012)
QLt0 1.5202 Carbon emissions from land use in 2007 Nordhaus and Yang
(1996)
cle 0.02 Yearly decay rate of carbon emissions of land Nordhaus and Yang
use (1996)

Appendix B. Changes of Industrial Structure of Countries

Because of the limited space, the 12 sectors in this study are merged into three
traditional industries, i.e. the food processing, energy, minerals, light and heavy
manufacturing, chemical industry, and construction are merged into sec-
ondary industry, and the trade and business services, transport and communication,
insurance and finance services, and other Services are merged into the tertiary in-
dustry. Table B.1 presents the industrial structures of countries in 2100 under
different schemes. The implementations of the abatement schemes have limited
effect on the industrial structures of countries in general. The tertiary industry of
Table B.1 GDP shares of the three industries of countries in 2100(%)
128

CHN USA JPN EU IND RUS ODC HDC MDC LDC

Scheme 1 Primary industry 2.1624 0.8038 0.7660 1.0687 4.7724 2.0087 1.1193 2.6511 3.6783 6.7285
Secondary 36.6408 26.4365 24.9768 28.4377 37.9948 38.9250 32.2176 35.8221 37.2563 38.8689
industry
Tertiary industry 61.1968 72.7598 74.2571 70.4937 57.2328 59.0663 66.6631 61.5269 59.0654 54.4025
Scheme 2 Primary industry 2.1476 0.8081 0.7704 1.0747 4.7673 2.0192 1.1258 2.6626 3.6680 6.7659
Secondary 36.6204 26.4427 24.9860 28.4488 37.9837 38.9259 32.2229 35.8268 37.2409 38.8742
industry
Tertiary industry 61.2320 72.7492 74.2436 70.4765 57.2490 59.0549 66.6513 61.5106 59.0911 54.3598
Scheme 3 Primary industry 2.1872 0.8094 0.7699 1.0724 4.7184 2.0480 1.1235 2.6549 3.6622 6.6553
Secondary 36.6603 26.4445 24.9817 28.4393 37.9508 38.9441 32.2195 35.8165 37.2344 38.8425
industry
Tertiary industry 61.1525 72.7461 74.2484 70.4883 57.3308 59.0079 66.6569 61.5286 59.1034 54.5022
Scheme 4a Primary industry 2.1969 0.8242 0.7778 1.0822 4.6375 2.0773 1.1387 2.6538 3.6310 6.6618
Secondary 36.6494 26.4705 24.9819 28.4394 37.8794 38.9449 32.2286 35.7921 37.1846 38.8231
industry
Tertiary industry 61.1537 72.7052 74.2403 70.4784 57.4832 58.9778 66.6327 61.5541 59.1844 54.5152
Scheme 4b Primary industry 2.1955 0.8286 0.7786 1.0854 4.6153 2.0853 1.1415 2.6529 3.6187 6.6703
Secondary 36.6390 26.4736 24.9817 28.4381 37.8652 38.9413 32.2266 35.7819 37.1663 38.8167
industry
Tertiary industry 61.1655 72.6978 74.2396 70.4765 57.5194 58.9734 66.6319 61.5653 59.2150 54.5129
Scheme 4c Primary industry 2.1933 0.8292 0.7835 1.0903 4.5935 2.0964 1.1462 2.6570 3.6115 6.6747
Secondary 36.6283 26.4664 24.9863 28.4437 37.8463 38.9418 32.2263 35.7770 37.1594 38.8097
industry
Tertiary industry 61.1785 72.7045 74.2302 70.4660 57.5602 58.9618 66.6274 61.5660 59.2291 54.5156
(continued)
6 CIECIA
Table B.1 (continued)
CHN USA JPN EU IND RUS ODC HDC MDC LDC
Scheme 5 Primary industry 2.1546 0.8069 0.7694 1.0736 4.7730 2.0018 1.1253 2.6621 3.6775 6.7178
Secondary 36.6279 26.4399 24.9830 28.4454 37.9868 38.9161 32.2208 35.8244 37.2465 38.8612
industry
Tertiary industry 61.2175 72.7532 74.2476 70.4809 57.2402 59.0821 66.6540 61.5135 59.0760 54.4210
Scheme 6 Primary industry 2.1586 0.8039 0.7732 1.0808 4.7849 1.9823 1.1317 2.6286 3.6860 6.7078
Secondary 36.6274 26.4303 24.9904 28.4600 37.9914 38.9005 32.2261 35.7924 37.2517 38.8573
industry
Tertiary industry 61.2140 72.7658 74.2364 70.4592 57.2238 59.1173 66.6422 61.5790 59.0623 54.4349
Appendix B. Changes of Industrial Structure of Countries
129
130 6 CIECIA

China has the largest GDP share by 2100 (61.23%) under the Nordhaus
Scheme (Scheme 2) while having the least (61.15%) under Scheme 3. The GDP
shares of the primary industry and the secondary industry of China by 2100 are
higher under Scheme 2 than those under Scheme 3. The tertiary industry of the
USA has the largest GDP share by 2100 (72.77%) under the Pareto improvement
scheme while having the least (72.70%) in Scheme 4. India obtains the largest GDP
share of the tertiary industry by 2100 (57.56%) under Scheme 4c and has the least
share (57.22%) under Scheme 6, which is opposite of the structure change in the
USA.
As shown in Table B.1, China obtains a higher GDP share of the tertiary in-
dustry in the schemes, thus benefiting its development more, e.g. the Nordhaus
Scheme, while in Scheme 4, which benefits the economy of India most, the GDP
share of tertiary industry of India is higher than those in other schemes. The USA
obtains the lowest GDP share of the tertiary industry in Scheme 4, which damages
its economic interests most. Thus, the GDP share is closely associated with the
economic development of a country. Under the schemes that benefit developing
countries more, the developing countries have rapid growth of the economy
especially their tertiary industries, competing with the developed countries and
accelerating the industrial transfer of the tertiary industry from the developed
countries to developing countries. However, under the schemes, which benefit the
developed countries more, the economic interests of the developing countries are
damaged and the industrial transfer of the tertiary industry decelerates, causing the
developed countries to maintain high GDP shares of their tertiary industries.

Appendix C. A New Pareto Improvement Scheme

According to the U.S.-China Joint Announcement on Climate Change announced

recently, this study designs a new global carbon abatement scheme in which China
can reach to its carbon emission peak in 2030 based on the Pareto Improvement
Scheme while achieving the Pareto improvements of the accumulated utilities of all
of the participating countries. In this scheme (Scheme 7), the carbon emission peak
of China is 2030, and the peak emissions are 2.87GtC. China cuts 40% emissions
by 2050 based on the 2005 level. The abatement targets of the other countries are
the same as those in Scheme 6. In Scheme 7, the carbon emissions of the USA in
2025 is 1.17GtC, having a 28.5% reduction based on 2005 level. That meets the
abatement requirements of the USA in the U.S.-China Joint Announcement on
Climate Change. The abatement tasks of countries are listed in Table C.1.
In Scheme 7, the global mean surface temperature increases by 1.99 °C in 2100
compared with the pre-industrial level, and the atmospheric concentration equiva-
lent of CO2 is 463.88 ppmv. Thus, Scheme 7 is effective. Figure C.1 presents the
Appendix C. A New Pareto Improvement Scheme 131

Table C.1 Reduction targets of countries in Scheme 7

By 2050 By 2100 Carbon Carbon
permits permits
2007–2050 2007–2100
(GtC) (GtC)
CHN Start reduction from 2016; Reach 40% reduction 98.43 134.01
carbon peak in 2030; 40% reduction based on 2050
based on 2005 level by 2050 level
USA 75% reduction based on 1990 level 40% reduction 45.92 59.60
based on 2050
level
JPN 90% reduction based on 1990 level 40% reduction 8.05 9.04
based on 2050
level
EU 95% reduction based on 1990 level 40% reduction 28.96 31.11
based on 2050
level
IND Reduce to 2005 level 20% reduction 19.15 33.61
based on 2050
level
RUS 50% reduction based on 1990 level 40% reduction 17.71 28.65
based on 2050
level
ODC 98% reduction based on 1990 level 70% reduction 15.90 16.13
based on 2050
level
HDC 20% reduction based on 2005 level 20% reduction 49.08 87.72
based on 2050
level
MDC 10% reduction based on 2005 level 20% reduction 26.00 46.09
based on 2050
level
LDC Start reduction from 2045; maintain Maintain 14.31 69.24
2045’s emission level between 2046 2050’s
and 2050 emission level

accumulated carbon emissions per capita of countries in Scheme 7, which are quite
similar to those in Scheme 6. The accumulated carbon emissions per capita of
China by 2100 reaches 104.46tC, a little above those in Scheme 6. The Gini
coefficients of the carbon emissions in 2100 and the accumulated emissions from
1990 to 2100 are 0.2610 and 0.3990 respectively, a little higher than those in
Scheme 6. However, the distances between the Gini coefficients of these two
schemes are small; therefore, the fairness of Scheme 7 is acceptable.
Figure C.2 presents the changing rates of the accumulated utilities of the world
and countries. All the accumulated utilities of countries from 2007 to 2100 are
132 6 CIECIA

250
2007-2050

Accumulated Carbon Emissions per capita (tC)

2007-2100

200

150

100

50

0
CHN USA JPN EU IND RUS ODC HDC MDC LDC

Fig. C.1 Accumulated carbon emissions per capita of countries in Scheme 7 (tC)

3.5
2007-2025
3 2007-2050
2007-2075
2.5 2007-2100
2007-2025 Global
2
2007-2050 Global
1.5 2007-2075 Global
2007-2100 Global
1
(%)

0.5

-0.5

-1

-1.5

-2
CHN USA JPN EU IND RUS ODC HDC MDC LDC

Fig. C.2 Changing rates of accumulated utility in Scheme 7 (%)

higher in Scheme 7 than those in Scheme 0, which means Scheme 7 realizes Pareto
improvement, the same as in Scheme 6. The accumulated utility changes of China,
the USA and the EU by 2100 are approximately 0.47%, similar to those in
Scheme 6; the changing rate of HDC ranks lowest with 0.03%. Because of the more
relaxed reduction task, the accumulated utility of China increases obviously com-
pared with that of Scheme 6, avoiding the huge economic losses caused by strict
emission controls in the early stages.
Appendix C. A New Pareto Improvement Scheme 133

Scheme 7 satisfies the feasibility and effectiveness of a global carbon abatement

scheme. Although its fairness is lower than that of Scheme 6, the differences
between them are very small. Thus, Scheme 7 is reasonable and acceptable to all of
the participating countries. This finding proves the abatement rout of the U.S.-
China Joint Announcement on Climate Change is feasible. In addition, because of
the large emissions in the early steps in Scheme 7, China needs to cut 40% of its
emissions based on 2005 level from 2030 to 2050, with an emission cut of nearly
2GtC. Thus, China faces heavy abatement tasks in the medium term.

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Chapter 7
Carbon Emission Governance
Under Global Carbon Taxes

7.1 Introduction

One of the most essential environment problem human beings need to face is the
global temperature rise caused by the emissions of greenhouse gases including
CO2, CH4 and N2O from human activities, among which CO2 is the major one
(IPCC 2007). Carbon tax policy has been generally considered as one of the most
market effective measures for carbon emission abatement (Baranzini et al. 2000).
Compared with other reduction measures, carbon tax brings the double welfares of
both government revenue and environment. That is, both improving the environ-
mental quality and correcting the tax distortion (Pearce 1991). Besides, the
implementation of carbon tax policy can also promote the decline of production
cost of firms, stimulate the adoption of energy-saving technologies, and the policy
can be adjusted in time if necessary (Pearce 1991). Compared with reduction
measures such as carbon emission cap, emission permit trade and emission subsidy,
carbon tax policy can run in low quality systems (Brandt and Svendsen 2014), and
its effects are better than those of emission cap or permit trade (Avi-Yonahand
Uhlmann 2009). Therefore, as a policy mode of climate governance, carbon tax has
obtained and long-term and wide supports (Zhang and Baranzini 2004).
The present researches of the carbon tax policies fall into two basic types by
their spatial scale: regional and global. The regional carbon tax policies have been
studied and discussed widely in academia, including the United Kingdom (Barker
et al. 1993), Sweden (Brännlundand Nordström 2004), Ireland (Callan et al. 2009),
China (Wang et al. 2009; Yao and Liu 2010) etc. Among them, computational
general model (CGE) has become the most important tool in the research on
regional carbon tax (Zhang 1998; Wissema and Dellink 2007; Devrajan et al. 2011;
Siriwardana et al. 2011).
In the global carbon tax researches, Nordhaus (1993) had a research on the
global carbon tax policy by using the DICE model. However, DICE model con-
siders the world as a whole and cannot study the impacts of carbon tax policy at a

© Springer Nature Singapore Pte Ltd. 2017 137

Z. Wang et al., Integrated Assessment Models
of Climate Change Economics, DOI 10.1007/978-981-10-3945-4_7
138 7 Carbon Emission Governance Under Global …

national or sectoral level. Besides, the endogenous technological mechanism is

lacked in DICE. Jaeger (1995) had a research on the changes of global net social
welfare cost under the impacts of carbon tax and climate mitigation. As the same as
DICE mode, this study considered the world as a whole. Farzin and Tahvonen
(1996) looked for the optimal carbon tax rout based on the global carbon cycle
model. However, this model merely focused on the consuming effect of fossils,
ignoring the consideration of economic factors. Manne and Richels (2006) had a
research on the global optimal carbon tax rate under the condition of limited
radiative forcing by using the MERGE model. However, this study also failed to
analyze economic impacts of carbon tax policy one a country level. The above
researches cannot judge the benefit and loss of countries under carbon tax policy,
and thus their abatement schemes lack security of fairness in ethics. Silverstein
(2010) designed a coordinating carbon tax policy and built a global climate fund by
carbon tax revenue that is distributed to countries according to demand factors.
However, this study focused on the levy and distribution processes of carbon tax,
ignoring the economic impacts of the carbon tax.
Actually, global carbon tax is a global governance problem related to multina-
tional economic development and climate change. Therefore, comprehensive con-
sideration about the global climate change, world economic development and
economic interactions among countries is necessary. The international economic
relations should not be neglected global carbon tax governance, otherwise, the
economic losses of countries suffering under different carbon tax policies cannot be
expressed exactly. On the other hand, the economic impact of carbon tax always
gets great attentions in the process of carbon tax policy making; and the concern
about the economic loss is the fundamental cause of that countries cannot reach an
agreement on the carbon tax problem at present. Besides, it is a pity that in the
previous researches, the distribution and use of the carbon tax revenue, especially
the feasibility of investing carbon tax revenue to low-carbon technological progress,
has not drawn enough attention, whereas the distribution of revenue is related to
economic benefit that is a major concern of countries and technological progress is
an important measure for reducing the economic loss caused by carbon tax and
improving the potentials of carbon abatement of countries.
For overcoming the shortcomings of the previous studies, an improved version
of Capital, Industrial Evolution and Climate change Integrated Assessment model
(CIECIA for short) is built in this study for the simulation of carbon tax policies to
have a comprehensive research on the impacts of carbon tax on climate change and
human economic activities. CIECIA is a climate-economic integrated assessment
model (IAM) developed by Wang et al. (2015) and mainly comprises economic
module, climate module, technological progress module etc. Among them, the core
of its economic module is a multi-country-sector general equilibrium model that is
modified and extended based on the model of Jin (2012)’s two-country model, to
reflect the economic relations among sectors of countries. Meanwhile, a stochastic
technological progress mode that is driven by knowledge capital is adopted in
CEICIA to depict the dynamic relationship between investment and technological
progress. In this study, a carbon tax policy module including four carbon tax
7.1 Introduction 139

revenue distribution modes is integrated into CIECIA. Based on this IAM, the
impacts of different carbon tax rates, revenue distribution modes and technological
progress strategies on the global and national economic developments, carbon
emissions and climate change are studied through scenario simulation, and some
feasible global carbon governance measures are suggested.

7.2 Model and Data Sources

Because the limitation of space, in this section we only introduce the parts closely
related to carbon tax in the model, including carbon tax policy module, techno-
logical progress module and the essential parts of the economic model. The details
of CIECIA can be seen in Gu and Wang (2015) and Wang et al. (2016). The basic
assumptions of CIECIA include: the commodity and capital flow among sectors of
countries are free and there is no trading barrier exists; the production sectors in one
countries shares a same wage rate and a same labor technological level in one step;
sectors producing same products in different countries have a same fixed capital
output elasticity; all the countries have a same discounting rate.

7.2.1 Production Module

In this study, country is denoted by i, sector is denoted by j and step, i.e. year, is
denoted by t henceforth. A two-layer-nested function formation comprises the
Leontief function and the Cobb-Douglas function is employed to depict the rela-
tionships among labor, capital stock, value added and gross output. The sectoral
gross output is composed of value added and intermediate inputs, and the value
added is formed by labor, capital stock and knowledge capital.
( j j j
)
M 1;i;t M k;i;t M I;i;t
Xi;tj ¼ min ; . . .; ; . . .; ; X " ; k ¼ 1; . . .; I ð7:1Þ
a1;j;i;t ak;j;i;t aI;j;i;t i;j;t
! "ai ! "1%ai # $ Z
b
"
Xi;j;t ¼ Xi;j;t Ki;tj Atj Li;tj Ztj j;t ð7:2Þ

I
X
Yi;tj ¼ j
Mk;i;t pk;t þ Xi;tj pi;t ð7:3Þ
k

where Xi;tj pi;t represents the value added of sector i of country j in step t; Xi;j;t
"

j
represents the initial value added formed by labor and capital; Mk;i;t is the inter-
mediate input k in the production process of sector i of country j; ak;j;i;t is the
140 7 Carbon Emission Governance Under Global …

coefficient of intermediate input; Ki;tj is the capital stock; Li;tj denotes the labor; Atj is
the labor technology level; ai is the output elasticity of fixed capital; Ztj denotes the
knowledge stock; bZj;t denotes the output elasticity of knowledge capital; pk;t is the
price of good k; Xi;j;t is the influence of climate change on the economy. Because of
free trade among countries, there is one international price associated with each
good i in each step.
According to Abel (2003) and Jin (2012), the fixed capital also updates in
Cobb-Douglas form. Whereas the update of the knowledge capital is computed
with Perpetual Inventory Method.

Ki;tj þ 1 ¼ aðIKj i;t Þ/ ðKi;tj Þ1%/ ð7:4Þ

Ztjþ 1 ¼ ð1 % dZ ÞZtj þ IZtj ð7:5Þ

where IKj i;t is the fixed capital investment of sector i in country j; IZj t is the
knowledge capital investment; / denotes the output elasticity of in capital pro-
duction; dZ denotes the depreciation rate of knowledge capital. Then the value of
fixed capital produced in step t can be found by differentiating Eq. 7.4 with partial
respect to IKj i;t .
!1%/
@Ki;tj þ 1 j
1 IK i;t
j
IKi;t
qi;tj Ki;tj þ 1 ¼ 1= Ki;tj þ 1 ¼ j
Ki;t þ 1 ¼ ð7:6Þ
@IKj i;t a/ Ki;tj /

where qi;tj denotes the fixed capital price.

According to Jin (2012), the associated price index and the equilibrium prices of
products are:

I #
Y $ ci
pt ¼
! pi;t ¼1 ð7:7Þ
i

ci g
pi;t ¼ g Xt ð7:8Þ
Xi;t

The clear condition of the global value added of sectors can be represented by
the aggregation of the final consumptions and the investments:

J
X J
X J X
X I
g
Xi;t ¼ Xi;tj ¼ ci;tj þ j
xk;i;t ð7:9Þ
j j j k

According to Wang et al. (2012), the Keynes-Ramsey utility function are

adopted to reflect the changing of economic strength, which is the analyzing basis
of the economic impacts of carbon tax policies.
7.2 Model and Data Sources 141

# % $1%q
j
T
X Ctj Poptj
UA ðT Þ ¼ ð b þ 1Þ %t
Poptj ð7:10Þ
t¼1
1%q

where UA j ðT Þ is the cumulative utility of country j until step T, Ctj denotes the
consumption; Poptj denotes the population; b is the discounting rate of which the
value is 0.015 consistent with Wang et al. (2012); q is the time preference of
consumer.

7.2.2 Knowledge Capital and Process Technological

Progress

Technological progress is a not negligible economic reality in the reach of long

term development. Process technological progress is the process in which the
intermediate input demands in production decline brought by technological pro-
gress, i.e. the production process innovations that lower the intermediate cost of
unitary product in production. Process technological progress is essential to the
decline of carbon emission intensities of countries in the economic developments.
According to Lorentz et al. (2008), the loop logarithmic shocking mechanism is
adopted in this model to realize the process technological progresses of sectors. The
process of the technological shock is: firstly a number from a Uniform distribution
ej;k;i;t;n 2 Nð0; qtj Þ is drawn by sector i in country j as its technological shock to
affect its intermediate input coefficient of product k.

lnða0k;j;i;t Þ ¼ lnða"k;j;i;t;n%1 Þ%ej;k;i;t;n ð7:11Þ

After one turn of technological! shocking, "a new set of intermediate input
coefficients is generated as a1;j;i;t;N ; . . .; a0I;j;i;t;N . This set will be adopted by the
0
P
sector if the unitary cost of this new set Jk a0k;j;i;t pi;t is less than the present unitary
P
cost Jk a"k;j;i;t;n%1 pi;t , otherwise the new set will be abandoned as the last one is
maintained. ! "
Then, after N turns, the finally obtained a"1;j;i;t;N ; . . .; a"I;j;i;t;N is adopted as the
intermediate input coefficients of the next step. The variance of the technological
shock qtj depicts the possibility of technological progress and determines the rate of
the process technological progress. According to Wang et al. (2015), it is assumed
that the process technological progress is influenced by the ratio of knowledge
capital in the total capital stock.
142 7 Carbon Emission Governance Under Global …

Ztj
qtj ¼a q
þ bq þ cqj;t ð7:12Þ
Ztj þ Ktj

where aq , bq and cqj;t are parameters of the function and listed in Sect. 2.5. In Eq. 7.
9, the possibility of technological progress rises by the increase of the share of
knowledge capital stock, so that the endogenous mode of technological progress is
built. This mode reflects the evolution economic mode that Nelson and Winter
(1982) recognized, that is, the technological progress is the result of enterprise’s
deterministic selection for profit from the microcosmic point, rather than just a
slowly incremental process.
Besides, it is worth noting that knowledge capital refers to the macro idea of the
accumulation of knowledge, technology and innovation. The improvement of
knowledge capital will also raise the production according to Eq. 7.2. Therefore,
investing knowledge capital itself is a type of technological progress promotion.

7.2.3 Carbon Emission Accounting and Carbon Tax levy

The energy uses of sectors are all supplied by the energy sector, thus the total
energy use in one step can be obtained by aggregating the intermediate energy
product inputs of sectors in countries.

Ei;tj ¼ sEi;j ME;i;t

j
ð7:13Þ

where Ei;tj denotes the sectoral energy use; sEi;j is the ratio of energy usage to unitary
energy product, i.e. energy intensity. The carbon emission of country j QPtj can be
obtained by its energy consumption, energy structure and the carbon emission
intensities of fossil energies.
!
E
X I
X
j
QPtj ¼ sCj;e je;i;t EC;t þ Ei;tj ð7:14Þ
e i

where je;i;t is the consuming share of the energy that is supplied by fossil energy
e of country j in step t; sCj;e is the carbon emission intensity of energy e in country j,
j
EC;t is the private energy consumption. The fossil energy is divided into oil, coal
and natural gas. The energy structures of countries are obtained by fitting the
history data from EIA.
There are two main carbon tax levy ways: on the production side and on the
consumption side. Levying carbon tax on the production side is easier to achieve
7.2 Model and Data Sources 143

and conducive to the governance of carbon tax and the source control of carbon
emission, and is widely accepted in academia. However, in this study we found that
the carbon emissions of unitary energy products are different while they are con-
sumed by different sectors in different countries (Table 7.1). Therefore, there exists
unfairness in levying carbon tax on the production side because this way of levy
ignores the emission differences in consumption.
For this reason, the consumption-side levying way of carbon tax is designed
considering the carbon emissions of sectoral productions and private consumptions
as the tax base. The specific duty method is adopted and the levy of carbon tax of
sector can be given by

E
X
CTi;tj ¼# Ei;tj scj;e je;i;t ð7:15Þ
e

where # the tax per unit of carbon emission. According to Hoel (1996), the carbon
tax rate across sectors of countries should be unique while the commodities flow
freely among countries. Thus, the total carbon tax levy of the world can be given by
!
I X
X J X
E J X
X E
CTtg ¼ # scj;e je;i;t Ei;tj þ j
sCj;e je;i;t EC;t ð7:16Þ
i j e j e

Affected by the carbon tax, the fixed capital margin product changes into

ai Xi;tj pi;t % CTi;tj

dKi;tj ¼ ð7:17Þ
Ki;tj

In CIECIA, an overlapping generation model is adopted to depict the consum-

ing and saving behaviors of residents. Therefore, the capital outputs of sectors are
all consumed as the retirement pay of the retirees. In this study, we try to shift the
carbon tax to the investments the sectors gain for the capital stocks. That is, levying
carbon tax from the investments of sectors. Because of the capital price in Eq. 7.6,
the sectoral carbon tax levy is

c%tax%out
Ii;j;t ¼ /CTi;tj ð7:18Þ

c%tax%out
where Ii;j;t is the tax loss of the investment of sector i in country j.
Carbon tax policy will affect the capital return rates of sectors and thus have
significant influence on the international capital flow. The investment mode of
CIECIA is composed of investment return rate equilibrium mode and the capi-
tal attractiveness mode. Under the influence of carbon tax, the function is changed
into:
 144

Table 7.1 Comparisons of sectoral carbon intensities of fossil energies in China and the USA in 2007 (MtCO2/Mtoe)
Fossil China USA
energy Oil Electricity Chemical Heavy Oil Electricity Chemical Heavy
industry industry industry industry industry industry industry industry
Coal 0.0950 3.8205 3.8060 3.8143 / 3.8775 3.8768 3.8806
Oil / 3.0458 0.6339 5.3736 / 3.0000 0.4737 /
Natural 2.1112 2.2341 1.2300 2.2334 0.4463 2.2274 1.7724 2.2313
gas
Petro 0.3149 2.8734 0.8082 2.6689 1.4424 1.3171 0.2581 2.8933
Data source GTAP-2007
“/” means the consumption or carbon emission of this type of fossil is 0
7 Carbon Emission Governance Under Global …
7.2 Model and Data Sources 145

" j # " j #
ai ci Xi;t þ 1 xi;tj Xi;t þ 1
R1 ði; j; tÞ ¼ g E g % g E g
sk % xt þ ð1 % /Þsl~st þ 1 Xi;t þ 1 sk % xt þ ð1 % /Þsl~st þ 1 Xt þ 1
ð1 % /Þsl~st þ 1
þ E½R1 ði; j; t þ 1Þ(
sk % xgt þ ð1 % /Þsl~st þ 1
ð7:19Þ
& & !
y
ax Xx;t y
pi;t % CTx;t & Y j&
x;y & t&
TKi;j ¼ Ki;tj wyt Lyt y exp %t&ln y & þ 1 ð7:20Þ
Kx;t & Yt &

In Eq. 7.19, R1 ði; j; tÞ is the tax revenue distribution weight under the investment
return rate equilibrium mode; xi;tj denotes the ratio of carbon tax levy to the value
added of this sector; xgt denotes the ratio of total carbon tax levy to the global value
x;y
added. In Eq. 7.20, TKi;j is the capital attractiveness intensity from sector x in
country y to sector i in country j.

7.2.4 Carbon Tax Revenue Distribution

For satisfying the equilibrium conditions, the carbon tax levy needs to be returned
back to sectoral investments or residential consumptions. As CIECIA is a
multi-country-sector model, there are two levels in the carbon tax revenue distri-
bution: national and sectoral. In the national level, a global fun pool is set for the
national carbon tax revenue distribution uniformly; in the sectoral level, the revenue
the countries gain is distributed to sectoral fixed capital investments, consumptions
or knowledge capital investments.
In the national level of revenue distribution, we referenced the thoughts of some
important global carbon-permit distribution. Four carbon tax revenue distribution
modes are designed including the sovereignty principle, the equality principle, the
carbon emission per capita principle and the payment ability principle. Meanwhile,
because of the specificity of carbon tax, that is different from carbon permit, the
carbon tax levy has clear source, we suggest that the tax levies of countries should
be considered in the distribution modes.
The sovereignty principle refers to that the revenue is distributed by the carbon
tax levies of countries. Then the carbon tax revenue of country j CRtj can be given
by
%
ntj J CTtj
CRAj;t ¼ PJ j % CTtg ¼ ntj CTtg ; ntj ¼ ð7:21Þ
j nt J
CTtg

where ntj is the share of the tax levy of country j in the global carbon tax revenue;
J is the number of country. In Eq. 7.21, the carbon tax levies of countries are
146 7 Carbon Emission Governance Under Global …

directly returned to themselves, thus there is no carbon tax international flow under
this principle.
The equality principle refers to distributing carbon tax revenue by the popula-
tions of countries in each step.

n j Pop j
CRBj;t ¼ PJt j t j CTtg ð7:22Þ
j nt Popt

The carbon emission per capita principle refers to distributing carbon tax rev-
enue by carbon emissions per capita of countries. The higher carbon emission per
capita the country has, the less revenue its gains.
%
ntj Poptj QPtj
CRCj;t ¼ PJ j j%
g
j CTt ð7:23Þ
j nt Popt QPt

The payment ability principle refers to distributing carbon tax revenue by the
available resources that the countries can pay. The payment ability is defined as a
carbon tax revenue distribution index that is in proportion to the population and in
inverse proportion to the value added per capita. Thus, the carbon tax revenue flows
from countries with stronger payment abilities to countries whose payment abilities
are weak. This principle considers both the population factors and the economic
development levels of countries.

j j# j% j $%ae
n t Pop t X t Pop t
CRD
j;t ¼ PJ j j# j% j $%ae
CTtg ð7:24Þ
j nt Popt Xt Popt

where ae is the parameter of payment ability. According to Wu et al. (2010), the

value of ae is 0.5 in this study.
In the sectoral level, the carbon tax revenue can be returned back to sectoral
fixed capital investment CRIi;j;t , final consumption CRCj;t and knowledge capital
investment CRZj;t .

CRj;t ¼ CRCj;t þ CRIj;t þ CRZj;t ð7:25Þ

We apply a method that distributing carbon tax revenue to sectors according to

the carbon emission intensities of sectors, i.e. the higher carbon emission intensity
the sector has, the less revenue it gains.
.
Xi;tj
QPi;tj
CRIi;j;t ¼P . CRIj;t ð7:26Þ
I j j
i Xi;t QPi;t
7.2 Model and Data Sources 147

7.2.5 Data Sources

The main economic data, including initial value added, fixed capitals, intermediate
inputs, and energy consumptions are mainly obtained from GTAP-07 (Narayanan
and Walmsley 2008). Capital output elasticity is calculated according to the value
added and wages of labor from GTAP-07. The history data of carbon emissions and
the carbon intensities of different types of energy of countries are obtained from the
website of EIA. Populations of countries and their growth rates are obtained from
World Population Prospects: The 2010 Revision (United Nations 2011), and the
population structures are obtained from the World Bank.1 The values of knowledge
capital related parameters including investing rates and the initial knowledge capital
stocks of countries in baseline are cited from Wang et al. (2012) and Liu (2013) and
are listed in Table 7.2.
The parameter values of the climate module, including damage function and
carbon-cycle model are obtained from to Nordhaus, Yang (1996), Pizer (1999) and
Svirezhev et al. (1999).
The values of aq and bq in Eq. 7.25 are 5.2298 ) 10−3 and 1.0499 ) 10−4
respectively. Table 7.2 presents the values of cqj;t . In the regression analysis of
Eq. 7.25, R2 is 0.8740, and the t statistics of the two parameters are −2.89 and 7.75
respectively. The hypothesis of Eq. 7.25 passes the test (Table 7.3).
For simplification, 57 sectors of GTAP-07 are merged into 12, comprising
Agriculture (Agri for short), Food Processing (FdPro), Energy (Enrg), Metal and
other Minerals (Mtl&Mn), Light Manufacturing (LghtMnfc), Chemical industry
(ChemInd), Heavy Manufacturing (HvyMnfc), Construction (Const), Trade and
Business Services (Trd&Busi), Transport and Communication (Trans&Comm),
Insurance and Finance Services (Ins&Fin) and Other Services (OthServ). The world
is also divided into 10 countries/regions, comprising China (CHN, for short), the
United States (USA), Japan (JPN), the European Union (EU), Russia (RUS), India
(IND), Other developed countries (ODC), High developing countries (HDC),
Middle developing countries (MDC), and Low developing countries (LDC).

7.3 Simulations of Different Carbon Tax Rates

According to the thoughts of global governance, the comparison of economic

developments and carbon emissions of countries under different carbon tax rates is
necessary. In this section, three different global carbon tax rate scenarios, called
Scenario Series A (SSA for short), are setting. The tax rates of these scenarios are
10, 20 and 50 US dollars per ton carbon in Scenario A1, A2 and A3 respectively.
In SSA, the sovereignty principles are adopted as the tax revenue distribution mode.

1
Population ages 15–64 (% of total): http://data.worldbank.org.cn/indicator/SP.POP.1564.TO.ZS.
148 7 Carbon Emission Governance Under Global …

Table 7.2 Related parameter values of knowledge capital

Output elasticity Investing rate Initial stock (billion US Dollar)
CHN 0.015 0.0141 162.34
USA 0.043 0.0257 1727.99
JPN 0.045 0.0332 696.41
EU 0.031 0.0165 1240.03
IND 0.01 0.005 24.30
RUS 0.016 0.01 14.03
ODC 0.031 0.018 1569.56
HDC 0.016 0.0014 132.74
MDC 0.01 0.0041 58.38
LDC 0.009 0.0016 13.57

Table 7.3 Parameter of the relationship between tech-shock and knowledge capital (1 ) 10−5)
CHN USA JPN EU IND RUS ODC HDC MDC LDC
cqj;t 2.7486 3.1119 −1.8432 2.0534 0.4239 2.4382 −0.4171 −5.5618 −0.5761 −2.3780

Besides, the global carbon tax policies are implemented from 2016.
As space is limited, the simulation outcomes of the baseline will not be introduced
here.
Figure 7.1 shows the shares of carbon tax in global GDP. It can be seen that the
carbon emission intensities decline by process technological progress, leading to the
decreasing of the proportions of carbon tax in global GDP. The decreasing rates of
carbon tax proportion also decrease generally over time. In Scenario A3, the pro-
portions of carbon tax in global GDP declines from 0.68% in 2016 to 0.38% in

0.8
Scenario A1 Scenario A2 Scenario A3
0.7

0.6

0.5

0.4
%

0.3

0.2

0.1

0
2015 2020 2025 2030 2035 2040 2045 2050 2055 2060 2065 2070 2075 2080 2085 2090 2095 2100

Fig. 7.1 Shares of carbon taxes in global GDP (%)

7.3 Simulations of Different Carbon Tax Rates 149

Table 7.4 Global surface 2025 2050 2075 2100

temperature rises from
pre-industrial level to Scenario A1 1.1663 1.8067 2.4843 3.1308
Scenario Series A (°) Scenario A2 1.1657 1.7956 2.4595 3.0957
Scenario A3 1.1623 1.7526 2.3761 2.9851

2050, and then to 0.24% in 2100, with higher decline rates than those in Scenario
A1 and A2.
Table 7.4 shows the global surface temperature rises compared with
pre-industrial level in SSA. Along with the increasing of carbon tax rate, the global
temperature risings decline. In Scenario A1, the global surface temperature is
3.13 °C higher than pre-industrial level, while in Scenario A3 with a higher carbon
tax rate, the temperature rise declines to 2.99 °C, by 0.18 °C from the baseline
scenario.
Figure 7.2 shows the changing rates of the product prices of sectors in 2100
from baseline to SSA. Under the influence of carbon tax, the prices of products in
highly energy-consumption sectors e.g. Enrg, ChemInd, Mtl&Mn and
Trans&Comm rise compared with those in baseline. The rises of prices increase
along with the increases of tax rate. Enrg and ChemInd are the most affected sectors
by the carbon tax policy. In Scenario 3, the product price of Enrg rises by 3.54%,
while the product price of ChemInd rise by 1.45%. However, the rising rates of
product prices of Mtl&Mn and Trans&Comm are below 1%.
Figure 7.3 depicts the cumulative carbon reductions of countries from 2016 to
2100 in SSA. Along with increasing of carbon tax rate, the carbon reductions of
countries increase obviously. Among them, China, India and HDC have higher
reductions than other countries. In Scenario A3, the cumulative carbon reductions
of China, India and HDC are 43.42, 36.11 and 16.11GtC respectively, whereas the
reductions of Japan, ODC and the USA are only 0.47, 0.60 and 2.39GtC

4
3.5
Scenario A1
3
Scenario A2
2.5
Scenario A3
2
1.5
%

1
0.5
0
-0.5
-1

Fig. 7.2 Changes of sectoral product prices in 2100 from baseline to Scenario Series A
150 7 Carbon Emission Governance Under Global …

50 25
Reduction of Sceanrio A1
45
Reduction of Sceanrio A2
40 Reduction of Sceanrio A3 20

35 Reducing rate of Sceanrio A1

Reducing rate of Sceanrio A2
30 15
Reducing rate of Sceanrio A3
GtC

25

%
20 10

15

10 5

0 0
CHN USA JPN EU IND RUS ODC HDC MDC LDC

Fig. 7.3 Reductions (GtC) and reducing rates (%) of cumulative carbon emissions between 2016
and 2100 from the baseline to Scenario Series A

respectively. The cumulative carbon reduction rates of China, India and HDC are
also much higher than those of developed countries. In Scenario A3, the reducing
rates of China and India are 15.35 and 20.99%, whereas those of the USA and the
EU are only 2.35 and 1.71%.
There are two main reasons for this phenomenon. First, both China and India are
emerging economies. Thus, they have much greater carbon emission demands than
developed countries, which brings larger reduction spaces. Second, in developing
countries e.g. China and India, the shares of highly energy-consumption sectors in
their industrial structures are far above those in developed countries, as well as the
carbon emission intensities. Besides, the carbon tax influence on the highly
energy-consumption sectors in developing countries makes capital flow tend to flow
to developed countries, being a brake of the development of the highly
energy-consumption sectors in developing countries somewhat and leading to both
higher carbon emission reductions and reducing rates of developing countries
further. This phenomenon needs to be given attention in the global governance of
carbon abatement.
In Table 7.5, it can be seen that in Scenario A3, the GDP shares of highly
energy-consumption sectors e.g. Enrg, Mtl&Mn and ChemInd of China and India
in their global sectoral GDPs decline obviously from baseline in 2025. The decline
rates of Enrg and Mtl&Mn of China are up to 4.16% and 0.97% respectively, while
the decline rate of India’s Enrg is 0.83% and the HDC’s is 0.30%. Whereas, the
GDP shares of highly energy-consumption sectors of developed countries increase
generally compared with those in baseline. That means under the influence of
carbon tax policies, the capital attractiveness of developing countries for highly
energy-consumption sectors weakens, and the trend that the highly
energy-consumption sectors shift back to developed countries with advanced
low-carbon technologies emerges.
Table 7.5 Changes of GDP shares of high energy-intensive sectors of countries in global sectoral GDPs from the baseline to Scenario A3 (%)
Year Sector CHN USA JPN EU IND RUS ODC HDC MDC LDC
2025 Enrg −4.1548 1.0746 0.2176 1.1396 −0.8229 0.3923 0.3874 1.0064 0.3557 0.4041
Mtl&Mn −0.9672 0.3610 0.0821 0.5196 −0.0271 −0.0405 0.1220 0.0308 −0.0370 −0.0437
ChemInd −0.3052 0.3421 0.0476 0.5629 −0.0591 −0.1585 0.0551 −0.2989 −0.0935 −0.0926
Trans&Comm 0.1095 0.0343 0.0721 0.1076 0.0332 −0.0453 0.0185 −0.1712 −0.0953 −0.0633
2050 Enrg −3.8445 1.6343 0.1180 1.0240 −1.6332 0.5098 0.5820 0.3990 0.5920 0.6186
Mtl&Mn −1.1326 0.5557 0.0907 0.6666 −0.0948 −0.0574 0.1755 0.0258 −0.0786 −0.1508
ChemInd −0.1209 0.7454 0.0727 0.9330 −0.1502 −0.3307 0.1974 −0.7326 −0.2368 −0.3774
7.3 Simulations of Different Carbon Tax Rates

Trans&Comm 0.4077 0.1041 0.0741 0.1226 0.0811 −0.0711 0.0591 −0.3844 −0.2338 −0.1594
2075 Enrg −1.2361 1.1872 0.0391 0.5877 −2.0669 0.3831 0.3511 −0.3632 0.5116 0.6064
Mtl&Mn −0.4033 0.4351 0.0546 0.4662 −0.1498 −0.0398 0.1221 −0.0718 −0.1290 −0.2844
ChemInd 0.5009 0.7259 0.0544 0.7784 −0.1254 −0.2516 0.1912 −0.8901 −0.3036 −0.6801
Trans&Comm 0.5580 0.1285 0.0470 0.0873 0.1131 −0.0499 0.0465 −0.4502 −0.2548 −0.2255
2100 Enrg 0.1170 0.8606 0.0208 0.3894 −2.0593 0.3019 0.2002 −0.8446 0.4486 0.5654
Mtl&Mn −0.0077 0.3387 0.0363 0.3401 −0.1237 −0.0179 0.0850 −0.1361 −0.1099 −0.4048
ChemInd 0.7352 0.6547 0.0450 0.6375 0.0112 −0.1403 0.1597 −0.8934 −0.2609 −0.9488
Trans&Comm 0.5440 0.1261 0.0296 0.0769 0.1493 −0.0293 0.0313 −0.4561 −0.1976 −0.2743
151
152 7 Carbon Emission Governance Under Global …

Along with the weakening of carbon tax’s economic impacts and the process
technological progress in developing countries, the industrial structure changes of
countries brought by the carbon tax policies decrease. In 2075, the drop of the GDP
share of China’s Enrg from the baseline decreases to 1.24 percentage points, and its
GDP share exceeds that of the baseline in 2100. The drop of GDP share of China’s
Mtl&Mn from the compared with the baseline decreases from 0.97 percentage point
in 2025 to 0.01 percentage point in 2100; the change of GDP share of India’s
ChemInd rises from −0.15 percentage point to 0.01 percentage point in 2100; the
GDP share change of HDC’s Trans&Comm rise from −0.25 percentage point in
2075 to −0.20 percentage point in 2100.
Due to the limitation of space, this section only analyzes the changing rates of
cumulative utilities of countries in Scenario A3 to have a study on the economic
impacts of carbon tax policy. From Fig. 7.4, it can be seen that in the early period of
the simulation, the cumulative utilities of countries decline at different levels
compared with the baseline scenario, which indicates that the carbon tax policy has
negative impacts on the economic developments, hurting the economic benefits of
countries. This kind of hurt peaks between 2050 and 2075. The loss rates of
cumulative utilities of countries decline obviously in 2100 compared with those in
2075. That is mainly because of the climate welfare causing by the carbon emission
reduction which leads to the decreasing of global surface temperature rising. Thus,
the climate welfare can compensate the economic loss of carbon tax policies to
some extent. However, the carbon tax revenue in SSA is all consumed, rather than
invested into sectoral productions or to promote technological progress. Therefore,
the cumulative utilities of countries between 2007 and 2100 in SSA are still below
those in the baseline scenario. That is disadvantageous to economic developments
of countries.
It is worth noting that the carbon emission reductions of countries in SSA are
much less than those of Pearce (1991) and Jaeger (1995) in which the carbon tax

-0.5

-1
%

2007-2025
-1.5 2007-2050
2007-2075
2007-2100
-2

-2.5
CHN USA JPN EU IND RUS ODC HDC MDC LDC

Fig. 7.4 Changes of cumulative utilities of countries between 2007 and specified year from
baseline to Scenario A3 (%)
7.3 Simulations of Different Carbon Tax Rates 153

results from several global IAMs researches including GREEN, MERGE and DICE
are reviewed, especially in developed countries. That is mainly because the
implementation time of carbon tax policies in this study is 2016, quite later than
those studies above. In the last 20 years, most of developed countries peaked or had
peaked their carbon emissions, and their carbon emissions have shown a trend of
decline at present. Thus, the impacts of carbon tax policy today are much weaker
than those of more than 20 years ago. Besides, the currency the above studies used
is the UD dollars in constant 1990’s prices. Considering the inflationary factors, the
real carbon tax rate in the above studies are higher than this study.

7.4 Simulations of Different Distribution Modes of Carbon

Tax Revenue

Based on the introduction of the distribution modes of carbon tax revenue, this
section simulates and analyzes the impacts of the distribution modes of carbon tax
revenue on the developments and carbon emissions of countries. Four scenarios
following four different distribution principles, called Scenario Series B (SSB for
short), are setting in this section: sovereignty principle scenario (Scenario B1),
equality principle scenario (Scenario B2), carbon emission per capita principle
scenario (Scenario B3) and payment ability principle scenario (Scenario B4). The
carbon tax rate in SSB is 20 US dollars per ton carbon, and the policies are still
implemented from 2016. Different from SSA, in SSB 50% of the carbon tax rev-
enue of countries is used to consume, while the other 50% is allocated to the
sectoral investments of fixed capital stocks following Eq. 7.23.
Table 7.6 shows the global surface temperature rises in SSB. It can be seen that
carbon tax revenue distribution mode has very little influence on the global tem-
perature rise. In SSB, the global surface temperatures in 2100 rise around 3.10 °C
from the pre-industrial level. Because a part of the tax revenue returns back to the
sectoral investments of fixed capital stock, the temperature rises in SSB increase
slightly from Scenario A2, but are still lower than Scenario A1.
Figure 7.5 depicts the cumulative carbon revenue flows among countries. There
is no international carbon tax revenue flow in Scenario B1 because the tax revenue
is distributed to countries according to the carbon tax incomes of countries. In
Scenario B2, China, India, MDC and LDC become the net inflow countries of
carbon tax revenue countries, whereas the revenue of the USA outflows largely. In

Table 7.6 Global surface 2025 2050 2075 2100

temperature rises from
pre-industrial level to Scenario B1 1.1657 1.7964 2.4627 3.1017
Scenario Series B (°C) Scenario B2 1.1657 1.7964 2.4629 3.1021
Scenario B3 1.1657 1.7963 2.4624 3.1017
Scenario B4 1.1657 1.7964 2.4628 3.1022
154 7 Carbon Emission Governance Under Global …

3000

2000

1000

0
Billion US Dollar

-1000

-2000

-3000

-4000
Scenario B2
-5000
Scenario B3
-6000 Scenario B4
-7000
CHN USA JPN EU IND RUS ODC HDC MDC LDC

Fig. 7.5 Cumulative net carbon tax outflow of countries from 2016 to 2100 in Scenario Series B
(108 US. Dollars)

Scenario B3, only India and LDC keep the net inflow trend of carbon tax revenue,
whereas China becomes the largest source of the outflow of carbon tax revenue.
The net inflow of LDC’s carbon tax revenue rises significantly from Scenario B2 to
Scenario B3. In Scenario B4, the net outflow of China’s tax revenue declines
compared with Scenario B3, the USA becomes the largest net outflow country
again, and India and LDC gain more revenue net inflow than other scenarios.
Under the principle of equality, China is a net inflow country of carbon tax
revenue whose cumulative inflow of carbon tax revenue is higher than its cumu-
lative outflow. Thus, the equality principle can benefit the economic development
of China. To developed countries with lower populations and higher GDPs per
capital, the payment ability principle is the most negative one. However, countries
with huge population sizes and lower economic developing levels e.g. India and
LDC will benefit most from this principle. Because of its decreasing population
after 2025 and the high level of carbon emission demand under the rapid growth of
economy, the economic benefit of China will be hurt most under the carbon
emission per capita principle. From the perspective of global governance, the
carbon emission per capita principle just pursues the fairness of carbon emission
distribution, ignoring the consideration of the economic statuses and developing
demands of countries in reality. Under carbon emission per capita principle, the net
outflows of carbon tax revenue of developed countries are lower than those under
equality principle and payment ability principle because the developed countries are
industrialized and have much higher energy technological levels, whereas the net
outflows of China, India and HDC are higher because these countries are still
during rapid industrialization with increasing carbon emissions per capita in future.
Therefore, the carbon emission per capita principle is unfair actually.
Besides, considering the ratios of carbon tax revenue to economic sizes, the
Russia’s outflows of carbon tax revenue in SSB are quite incredible. That is mainly
7.4 Simulations of Different Distribution Modes of Carbon Tax Revenue 155

because the highly energy consumption sectors e.g. Enrg, Mtl&Mn, ChemInd
occupy large accounts in its industrial structure.
Figure 7.6 shows the changes of cumulative utilities of countries between 2007
and 2100 from the baseline scenario to SSB. The changes of the cumulative utilities
are similar to the changes of the net flows of carbon tax revenue, which indicates
the carbon tax policy will affect the economic development of countries directly. In
Scenario B1, as a part of the tax revenue is invested back to sectors, the cumulative
utilities of developed countries and Russia that are less affected by the carbon tax
policies exceed those in baseline by 2100. In Scenario B2, as becoming the carbon
tax revenue net inflow countries, the cumulative utilities of India and LDC increase
compared with the baseline. The decreasing rate of China’s cumulative utility
decline to 0.05% from the baseline to Scenario B2. In Scenario B3, China suffers
large drop of cumulative utility by 0.25% from the baseline, with is in accord with
its state of massive carbon tax revenue outflow, while the cumulative utility of LDC
rises by 1.21%. In Scenario 4, developed countries and Russia suffer higher decline
rates of cumulative utilities, which is also accord with their states of carbon tax
revenue flow.
It is worth noting that contrary to the differences of the cumulative carbon tax
revenue inflow, the rise of cumulative utility of LDC in Scenario B4 is lower than
that of Scenario B3, while the cumulative utility of China in Scenario B4 is higher
than those of Scenario B1. This phenomenon is related to the over-time changes of
carbon tax revenue distribution. Although the cumulative carbon tax revenue flow
of China is negative in Scenario B4, China is a net inflow country of carbon tax
revenue in the early steps before 2035 (Table 7.7). Thus, China gains more tax
revenue in Scenario B4 than in Scenario B1. According to Eq. 7.7, because of the
existence of discount rate, the longer the future utility is from current, the less
current utility it is after discounting. Therefore, despite keeping net outflow state of
tax revenue after 2035, China’s cumulative utility between 2007 and 2100 in

1.2
Scenario B1
1
Scenario B2
0.8 Scenario B3

Scenario B4
0.6
%

0.4

0.2

-0.2

-0.4
CHN USA JPN EU IND RUS ODC HDC MDC LDC

Fig. 7.6 Changes of cumulative utilities of countries between 2007 and 2100 from the baseline to
SSB (%)
156 7 Carbon Emission Governance Under Global …

Table 7.7 Net inflows of carbon tax revenue in China at early steps in Scenario B1 and B4 (109
US. Dollars)
Scenario B1 Scenario B4
2016 2020 2025 2030 2035 2016 2020 2025 2030 2035
0 0 0 0 0 32.4001 25.5558 16.7847 7.6309 −1.0138

Table 7.8 Net inflows of carbon tax revenue in LDC at early steps in Scenario B3 and B4 (109
US. Dollars)
Scenario B3 Scenario B4
2016 2020 2025 2030 2035 2016 2020 2025 2030 2035
34.3214 37.4542 41.8798 46.4959 50.5840 13.8628 16.6606 21.0015 26.3500 32.6626

Scenario B4 is still higher than in Scenario B1 in which no carbon tax revenue flow
exists depending on the net inflow of carbon tax revenue before 2035. Similarly,
although the total cumulative inflow of carbon tax revenue of LDC in Scenario B4
is higher than in Scenario B3, its cumulative utility between 2007 and 2100 is less
instead because of its lower carbon tax revenue inflow in the early period
(Table 7.8).
In this section, the outcomes of the carbon emissions in SSB are compared with
those in Scenario A2 in analysis because of the same carbon tax rate and similar
carbon emissions of countries. Figure 7.7 shows that the cumulative carbon
emissions of countries in SSB increase slightly from Scenario A2. In general the
carbon emission of China increases most, by more than 1.1GtC, followed by HDC
and MDC whose carbon emissions increase by more than 0.7GtC, whereas the rises
of carbon emissions of Japan and ODC are negligible. The carbon emissions of
developed countries, Russia and LDC increase most under the sovereignty

1.8 0.7
Reduction of Sceanrio B1 Reduction of Sceanrio B2
1.6 Reduction of Sceanrio B3 Reduction of Sceanrio B4
Reducing rate of Sceanrio B1 Reducing rate of Sceanrio B2 0.6
1.4 Reducing rate of Sceanrio B3 Reducing rate of Sceanrio B4
0.5
1.2

1 0.4
GtC

0.8 0.3

0.6
0.2
0.4
0.1
0.2

0 0
CHN USA JPN EU IND RUS ODC HDC MDC LDC

Fig. 7.7 Increases (GtC) and increasing rates (%) of cumulative carbon emissions of countries
between 2016 and 2100 from Scenario A2 to SSB
7.4 Simulations of Different Distribution Modes of Carbon Tax Revenue 157

principle, while the carbon emissions of India and MDC increase most under the
principle of carbon emission per capita. China raises its carbon emission most under
the equality principle.
The changes of carbon emission of India and LDC are more complicated. On
one hand, inflow of carbon tax revenue will raise the carbon emissions by more
investments to sectors, but on the other hand, more revenue inflow will promote
economic growth and then accelerate the technological progress, bringing down the
carbon emission intensions. That is why after massive carbon tax revenue inflow in
Scenario B2, B3 and B4, the carbon emission of LDC are lower than that of
Scenario B1, and in Scenario B3 in which India gains its least revenue inflow
except in Scenario B1, India’s carbon emission is higher than in Scenario B2 and
B4 instead.

7.5 Impacts of Technological Progress Strategy in Carbon

Tax Policy

This section has a research on the changes of economic developments and carbon
emissions of countries under the condition that a part of the carbon tax revenue is
invested to the knowledge capital stocks for improving the rates of technological
progress. One important reason of that the global carbon tax policy receives more
and more support is the potential benefit brought by the investment in the energy
technologies by using carbon tax revenue (Rees 2006; Schlesinger 2006; IPCC
2007). Three scenarios called Scenario Series C (SSC for short) are setting in this
section. In Scenario C1, 20% of the carbon tax revenue of countries is invested in
their knowledge capital stocks to promote technological progress, while 40% in
Scenario C2 and 50% in Scenario C3. In SSC, the carbon tax rate is 20 US dollar
per ton carbon; the revenue distribution mode is the equality principle; 50% of the
tax revenue of countries is invested to the fixed capital stock of sectors and the
others are consumed; the carbon tax policy is still implemented from 2016.
Table 7.9 shows the global temperature rises in SSC. Compared with those in
SSA and SSB, the temperature rises in SSC decline significantly under the effect of
the acceleration of the process technological progress rates of countries. In Scenario
C1, the global temperature rise in 2100 is 3.01 °C, lower than that of Scenario A3
in which the carbon tax rate is up to 50 US dollar per ton carbon. In Scenario C3,
the global temperature rise in 2100 decline to 2.87 °C, decreasing by 0.3 °C from
the same step in the baseline. The effect of temperature control of SSC is obvious.

Table 7.9 Temperature rises 2025 2050 2075 2100

from pre-industrial level in
Scenario Series C (°C) Scenario C1 1.1657 1.7866 2.4191 3.0090
Scenario C2 1.1657 1.7758 2.3739 2.9160
Scenario C3 1.1657 1.7703 2.3522 2.8726
158 7 Carbon Emission Governance Under Global …

60 Reduction of Sceanrio C1
30
Reduction of Sceanrio C2
Reduction of Sceanrio C3
50 25
Reducing rate of Sceanrio C1
Reducing rate of Sceanrio C2
Reducing rate of Sceanrio C3
40 20
GtC

%
30 15

20 10

10 5

0 0
CHN USA JPN EU IND RUS ODC HDC MDC LDC

Fig. 7.8 Reductions (GtC) and reduction rates (%) of cumulative carbon emissions of countries
from Scenario A2 to Scenario Series C

Figure 7.8 shows the carbon emission reductions and reducing rates of countries
from Scenario A2 to SSC. Along with the rising of knowledge capital investment,
the reductions and reducing rates increase somewhat. In Scenario C3, the carbon
reductions of China and India reach to 56.19 and 43.71GtC respectively compared
with Scenario A2, more than other countries, and India, China and LDC have
higher reducing rates that are 27.92%, 20.98% and 19.66% respectively. Both the
carbon reductions and reducing rates of developed countries and Russia are much
lower than those of developing countries. In Scenario C3, the reductions of
developed countries and Russia are all less than 1.5GtC, and the reducing rates are
all below 4%.
It is indicated that the developing countries, especially those with higher carbon
emission demands in future as China and India, are more sensitive to the
improvement of knowledge capital and will achieve higher carbon reductions,
whereas the reductions of developed countries and Russia are very limited, which
means those countries are insensitive to the improvements of knowledge capital
investing rates. The main reasons of this phenomenon are: first, the carbon emission
demands of developed countries and Russia are lower than the other developing
countries, reflecting limited reduction potentials of developed countries and Russia.
Second, developed countries always have higher process technological levels as
well as knowledge capital stocks at the initial step, which makes the added
knowledge capital from the carbon tax revenue have very little effect on the process
technological progress rates of developed countries.
Beside, under the distribution principle of equality, developed countries and
Russia are all net outflow countries of carbon tax revenue. This also limits those
countries, especially Russia, to invest their tax revenue to knowledge capital stocks.
It can be seen in Fig. 7.5 that the Russia’s cumulative net outflow of carbon tax
revenue is as same as that of the EU, much higher than Japan and ODC, although
the economic size of Russia is quite smaller than EU. Table 7.10 shows that the
7.5 Impacts of Technological Progress Strategy in Carbon Tax Policy 159

Table 7.10 Ratios of cumulative carbon tax revenue inflows to outflows of countries in SSC
CHN USA JPN EU IND RUS ODC HDC MDC LDC
Scenario 1.1462 0.3259 0.1019 0.4380 1.3370 0.1115 0.1579 0.9401 1.0885 2.6545
C1
Scenario 1.1346 0.3239 0.1013 0.4355 1.3247 0.1108 0.1571 0.9318 1.0797 2.6383
C2
Scenario 1.1106 0.3201 0.1003 0.4306 1.2995 0.1094 0.1554 0.9154 1.0624 2.6063
C3

ratios of Russia in SSC are close to Japan’s levels, lower than the ratios of the USA
and the EU and especially lower than developing countries e.g. China, India and
LDC. That indicates the carbon tax revenue of Russia is very limited, leading to
fewer added knowledge capital from the carbon tax revenue. This makes Russia
insensitive to the technological progress policy like developed countries in SSC to
some extent, although the initial process technological level and knowledge capital
stock of Russia are both far from developed countries.
Figure 7.9 shows the changing rates of cumulative utilities of countries between
2007 and 2100 from the baseline scenario to SSC. Under the influence of tech-
nological progress, the cumulative utilities of countries in SSC are higher than any
scenario in SSA or SSB. In Scenario C3, almost all the cumulative utilities are
higher than the baseline, which means the economic losses by carbon tax can be
fully compensated by the impacts of technological progress and the climate welfare.
Similar to Fig. 7.8, the sensitivities of developing countries to the policy are much
higher than those of developed countries and Russia. In Scenario C3, LDC raises its
cumulative utility by 11.32% from the baseline, higher than any other countries. It
is followed by HDC and MDC which raise their cumulative utilities by 6.86% and
4.70% respectively. Whereas, the changing rates of the USA and the EU in

12
Scenario C1
10 Scenario C2
Scenario C3
8

6
%

0
CHN USA JPN EU IND RUS ODC HDC MDC LDC
-2

Fig. 7.9 Changes of cumulative utilities of countries between 2007 and 2100 from the baseline to
Scenario Series C (%)
160 7 Carbon Emission Governance Under Global …

Scenario C3 are rarely 0.12 and 0.25%, and the cumulative utility of Japan in
Scenario C3 is still below the baseline level.
To developed countries, their higher knowledge capital and process technolog-
ical levels and lower gained carbon tax revenue are still the main reasons why the
impact of the strategy using carbon tax revenue to invest knowledge capital on the
knowledge capital stocks and process technological levels is so weak. To Russia, its
main reason of weak changes of cumulative utilities in SSC is its extremely low
carbon tax revenue.

7.6 Conclusions

In this study, a new improved version of CIECIA combining with a carbon tax
policy module was built. In carbon tax module, four distribution modes of carbon
tax revenue were designed according to different distribution principles. Based on
the scenario simulations, the impacts of global carbon tax policy on the economic
developments of sectors in countries and the global climate changes are studied, as
well as the impacts of different distribution modes and technological progress
strategies.
The results show that the carbon tax policies would obviously promote the
carbon emission reductions of countries, especially the developing countries. In
Scenario A3 while the carbon tax rate is 50 US dollar per tonne carbon, the
reductions of cumulative carbon emissions of China and India between 2016 and
2100 can reach to 43.42 and 36.11GtC, while the carbon reductions of the USA and
Japan are 2.39 and 0.47GtC respectively. The main reason of this phenomenon is
that China and India have higher carbon reduction potentials for their higher initial
carbon emission intensities and greater carbon emission demands in future. Besides,
the highly energy-consumption sectors of developing countries will transfer to
developed countries in which the economic losses under carbon tax policy are
fewer. This enlarges the distance of carbon reduction between developing countries
and developed countries to some extent.
In the four international carbon tax revenue distribution modes, the equality
principle benefits the carbon tax revenue of China most. The carbon emission per
capita principle benefits developed countries and the middle and low developing
countries, whereas leading to tax revenue losses in China, India and HDC. That is
because the carbon emission per capita principle pursuits the equality in revenue
distribution unilaterally, ignoring the development demands of emerging economies
as China and India. Because of the decreasing trend of population after 2025 and
the continuingly large carbon emission demand along with the rapid economic
development, China suffers the greatest loss of carbon tax revenue under the
principle of carbon emission per capita. The payment ability principle is the most
disadvantageous to the carbon tax revenue of developed counties with small pop-
ulations but high GDPs per capita. However, it benefits countries with large pop-
ulation sizes and low economic levels as India and LDC. In sum, under the equality
7.6 Conclusions 161

principle, the net inflows of carbon tax revenue of countries are closer. Under the
payment ability principle, the net outflows of carbon tax revenue of developed
countries are higher than under the equality principle and the carbon emission per
capita principle, while the inflows of developing countries, especially LDC rise
obviously.
Investing knowledge capital stock buy using carbon tax revenue to promote the
process technological progress would improve the carbon emission reductions of
countries effectively, especially for developing countries. While the share of
knowledge capital investment in the carbon tax revenue rise up to 50%, the
cumulative reductions of China and India from the baseline reach to 71.19 and
59.23GtC respectively. Developed countries and Russia are almost insensitive to
the knowledge capital investment measures and reduce their carbon emissions very
few in Scenario Series C because of several reasons e.g. less reduction potentials
led by higher initial knowledge capitals and process technological levels, and less
carbon tax revenue.
It is worth noting that even when the share of knowledge capital investment is up
to 50% in Scenario C3, the global surface temperature rise still reaches to 2.87 °C,
far from the 2 °C global warming controlling target of the internationally recog-
nized Copenhagen Consensus. Thus, the carbon tax policy can only reduce the
carbon emissions to a certain extent, but not solve the pressing global climate
change problems fundamentally. Therefore, the implementation of global produc-
tion abatements is still an important measure for achieving the goal of global
climate mitigation.

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Chapter 8
Global Climate Ethics: A View Based
on Chinese Philosophy

The Ethical Factors have been recognized in the scientific researches on the Climate
Change. Active responding to the Climate Change is a common goal and mission of
all human beings. The better approach of scientific researches on the Climate
Change should integrate the studies on economic realities as well as ethics. Focused
on such researches on the national and international levels, this essay is trying to
introduce a more rational climate ethical system, on the basis of traditional Chinese
Ethics, with emphasis on its core value of “harmony” and the practice of “operation
on ranking and grouping”. Under the practice, this essay probes into the funda-
mental ethical principles in the climate policy making—Equity, Justice, Values and
Wellbeing, pinning the ethical definitions of Equity and Justice to set the ethical
criteria in the negotiations on the Climate Change. In the end, it draws to a
conclusion of Climate Ethics of the global community: all the measures against the
Climate Change should keep in line with the social and economic development of
all the participating countries, paving the way for the Pareto improvements in each
participant while reducing the gaps among them, without depressing the social
individuals which are being poor deeper into poverty.

8.1 Introduction

The Climate Change has come into the spotlight of the global community as it holds
an influence across any social or political boundaries, and as well as one of the key
factors to the development of every country, even to each person’s life. Thus, it
demands every government to promulgate its policy/policies on it. Regardless of
the objections and denials from the international NGOs, like NIPCC, the World
Meteorological Organization (WMO) and the United Nations Environment

Foundation: National Basic Research Program of China (973 Program), No. 2012CB955804.

© Springer Nature Singapore Pte Ltd. 2017 165

Z. Wang et al., Integrated Assessment Models
of Climate Change Economics, DOI 10.1007/978-981-10-3945-4_8
166 8 Global Climate Ethics: A View Based on Chinese Philosophy

Programme (UNEP) have officially launched IPCC, the Intergovernmental Panel on

Climate Change, which announced the Global Warming as a reality and calls for
actions against it from all global communities. However, when it goes for concrete
actions, the ethical debating surfaced and led to discussion on Ethics of the Climate
Change (Gardiner 2004). In the recent years, the debating between some two
dramatic figures, Nordhaus (2007) and Stern (2008), has escalated the international
concerns on these issues. The Ethics of the Climate Changes containing the social
and environmental ethics, with profound influences on the intricate personal and
society well-being, deserves some systematic researches.
The crux of the Climate Ethics lies in the difference between science and
humanity—science is neutral and objective in values while human beings are not.
Under absolute neutral judgments, the Global Warming is nothing scaring but
purely a technical issue. The reality is that the Climate Change has run deep into the
intricacies of many social and political issues. Only when we realize why we have
to do and make a global agreement according to their own value principle, can we
solve the issue caused by climate change through the means of science and tech-
nology, and on this basis to discuss the responsibility for climate protection, the
target of climate control, the reduction quotas of greenhouse gas emission, the
national economic cost and action attitude moreover the procedural justice and
other decision-making issues. This situation gives a prefect testimony to Voltaire’s
saying: Ethics comes first in human needs. All the countries on this globe have to
answer this question. This article attempts to address on the Climate Ethics with the
basic concepts, in association with the culture and geography of China.

8.2 The Significance of the Climate Ethics

Climate ethics issues can be traced back to the 1980s for and the 10th Conference of
the Parties of the United Nations Framework Convention on Climate Change in
December 2004 is a key point. At this meeting, due to the debate on the respon-
sibility addressing on climate change, Rock Ethics Institute of Pennsylvania State
University in the United States initiated a cooperative research program focusing on
the ethical dimension of climate change, which released the “Dimensions of Climate
Change [EB/OL]” in 2007. At the same time, Northcott, an internationally
renowned ethicist from the University of Edinburgh, UK, published “Climate ethics
appeals to the world” (Northcott 2007) appeal for international attention. These
studies of climate ethics are always more concerned about the general environ-
mental ethics. In fact, from the perspective of general ethics, human raise the issues
of environmental ethics: What is the position of human-beings in the nature? What
is the basic value of human-beings? What is our biological and social character
respectively and what about its importance? What is the reasonable and valuable
way of life for us to live in the nature?
8.2 The Significance of the Climate Ethics 167

At the Copenhagen conference of 2009, the response to climate change was

revealed not only as the issues of environmental ethics, but also the moral issues of
relationship between countries and nations at the height of “international ethics”.
After that conference, some British accused China of kidnapping the meeting while
some Chinese accused developed nations of kidnapping the world. But now, the
whole world has to pay for what they have done. These are forcing us to consid-
ering climate change as an ethical issue which challenges the human civilization but
not only an environmental ethics. Many scholars from developing countries, such
as Hao (2010), Lang (20101), argue that the climate change has already evolved
from a scientific issue into the social and political issue, becoming a new means for
the developed countries to kidnap the world and maintain its existing global
domination. Scholars from developed countries, such as Posner and Sunstein
(2008), they want to put more emphasis on the responsibility of emissions reduc-
tions in developing countries, and defense for the negative treatment of greenhouse
gas emission reduction of the United States under the name of justice.
In numerous studies at present, the core of climate ethics has been explained as
that people in the same boat should help each other, or “In the Same Boat” Principle
for short, namely human collaboration is needed to address climate issues. There is
a quite popular fable reflects this viewpoint. Many tourists were in a sinking boat,
only abandoning luggage could keep the ship to stay afloat. Therefore, we should
not argue about whose luggage should be abandoned. This fable reflects the core
viewpoint of the climate ethics: people in the same boat should just help each other,
which sounds reasonable according to the traditional environmental ethics. As a
result, the “climate chauvinism” is accused for stressing too much on individual
country’s interests. However, the developing countries have found a challenge to
this theory, through their own development. The share of responsibilities among the
countries is not the same as some western scholars stated. It goes beyond the ethics
of environment into the ethics of social and economic development. The former
story about the big sinking ship should be revised as: since there are differences in
the wealth of the tourists, should the richer with much more luggage which lead to
the broke down of the boat, take more responsibility. Further more, how to allocate
luggage abandoning. If everyone has to abandon a piece of luggage, it means that
the rich just have to abandon one pieced of their luggage while the poor has to
abandon the only piece of luggage they have. For the poor, that means a complete
loss of all their property, which would lead them to be frozen or starved. Is it fair on
the ethics to ask everyone to abandon one piece of luggage equally? This raises the
need for further research on climate ethics. Some people think that developed
countries can gain more GDP with the same carbon emission due to their advanced
technology. This idea is actually a climate colonial ideology, which means the
developed countries are entitled to keep their advantages over the developing
countries in sharing of the world resources. They completely forget, with the same

1
Lang Xianping, Lang’s Review on Finance and Economics: scandalous fraud of climate change,
http://v.ku6.com/show/_c4ouaTrnnz4xnFSclnvZg.html?nv=1.
168 8 Global Climate Ethics: A View Based on Chinese Philosophy

carbon emission, the increase of net benefits for developing countries may be less
than that in the developed countries. But because of the initial welfare in developing
countries is much lower than developed countries, the welfare improvement in
developing countries is much prominent.

8.2.1 A New Perspective of Climate Ethics

Under this circumstance, what’s the standing point of climate ethics? What is the
norms, beliefs, attitudes and guidelines of human being’s behavior which affect the
change of climate? Some scholars have proposed standards for welfare evaluation,
but humans’ view on welfare carries on in stages, how to evaluate the long-term
welfare, and how to determine the long-term is the key issues we have to settle.
Since we believe that the climate change is an environmental issue, we need to go
back to the environmental ethics. As an evolutionary selection of human existence,
Chinese culture, a culture with long history, has a positive meaning to the estab-
lishment of climate ethics. There is a complete development of environmental
ethics since ancient China (Wang and Wang 1998), and the archaic Chinese
environmental ethics can be considered as the standing point of the climate ethics.
Chinese philosophy contends that human ethics requires the coexistence, which
means harmony of human relations, named “He” in Chinese. The Chinese tradi-
tional ethical system has complete elaboration on this issue. As a kind of cultural
choice when man evolved in the environment for survival, Chinese civilization with
thousands of years of heritage is worth learning. Confucius said: “In practicing the
rules of propriety, a natural ease is to be prized” (The Analects • Xue Er). This
means that the core content the in implementing ethical system is “He” (means
harmony). Chuang Tzu said “now in a high position and now in a low, he is in
harmony with all his surroundings (Chuang Tzu, The Tree on the Mountain).
Harmony has become a standard, because “Everything has been able to all-win and
in health” (XunZi, The Tianlun). Finally, Dong Zhongshu concluded: “Harmony is
greater than morals” (Dong Zhongshu, “ChunQiuFanLu”). This is a summary of the
reality. In fact, “Harmony is greater than morals” is the evolutionary selection of
human over the past millions of years. It is lucky for humans to choose harmony as
principle to fight against natural risks, compose social cooperation to withstand
disasters. Xunzi summarized the choice of human evolution, he said: “Why beasts
of burden can be used by humans? It’s because human can be combined into a
social group, but they can not” (“XunZi, Wang Zhi”). Although the reason why
beasts of burden become a tool of humans is not merely due to their lack of ability
to cooperate, cooperation is indeed the selection of human’s evolution.
Under the ethical principle of harmony, Chinese philosophy emphasizes the
purpose of cooperation is to live together instead of profit competition. While the
climate colonialism and climate chauvinism are in the opposite direction. Laozi
deemed: “With all the sharpness of the Way of Heaven, it injures not; with all the
doing in the way of the sage he does not strive.” (LaoZi). The target principle of
8.2 The Significance of the Climate Ethics 169

climate ethics is the cooperation for the co-existence, but not the maximization of
welfare on temporary. And Xunzi said “If the principle to organize the social groups
is appropriate, everything can get suitable arrangements, all animals can have its
deserved growth, and all creatures could be able to gain its life.” (XunZi,
WangZhi). Everyone has the opportunity to obtain its deserved growth and lifespan.
On the issue of how to achieve, Xunzi summarize the human evolutionary selec-
tion. He said “why beasts of burden become slaves for humans? Because humans
can form social groups, but they can not. Why human can be combined to form a
social group? That is because of the rank and grade. How to implement the rank and
grade? It’s because of the existence of morals. So after determining the rank and
grade according to the morals, people will be able to gain the harmony and coor-
dination in their life, which attribute to the solidarity. Power expands by solidarity,
resulting prosperous, which can defeat external objects. Therefore, humans may
live in their house. Therefore, the reason why people can order the four seasons to
manage everything, and benefit the whole world is merely the rank and morals.
(XunZi, Wang Zhi). Xunzi stressed the foundation to understand the ethics culture
is the “rank” based on the “morals”, here the “morals” is the standard of ethics,
while the “rank” is the action principle of ethics. Xunzi Warning: “Humans can not
live without social groups, but there will be contention if the humans combined into
a social group without ranking and grading, which may generate unrest. Once the
unrest happened, it will lead to the alienation of members and weaken the strengths,
resulting the failing to defeat external objects.” (“XunZi, Wang Zhi”). On ethics, the
“morals” of Chinese philosophy means to understand each other. Confucius
emphasized” The man of perfect virtue, wishing to be established himself, seeks
also to establish others; wishing to be enlarged himself, he seeks also to enlarge
others. “(The Analects, Yong ye). Voltaire highly praised this ethics thought of
Confucius.2
It is worthwhile to note that the so-called “ranking the group” stressed by Xunzi
focus on the allocation of the group’s responsibility to individuals. And he also
argues “All creatures could be able to gain its life.” And “ranking the group”
requires group interests should be implemented to individuals. Measurement of
happiness and level of responsibility should be reflected in the collective as well as
the concept of happiness and responsibility, which is a basic understanding of
Chinese philosophy. As the common saying goes in China, “Every man alive has a
duty to his country.” It means that each individual should assume the responsibility
for the collectivity, and this share is implemented into individual in the terms of
public welfare. Confucius said, “I have heard that rulers of states and chiefs of
families are not troubled lest their people should be few, but are troubled lest they
should not keep their several places.” (“The Analects, Ji Shi”). Xunzi said: “How to
implement the rank and grade? It’s because of the existence of morals. So after
determining the rank and grade according to the morals, people will be able to gain
the harmony and coordination in their life, which attribute to the solidarity. Power

2
http://www.360doc.com/content/11/1124/03/7434782_166914190.shtml.
170 8 Global Climate Ethics: A View Based on Chinese Philosophy

expand by solidarity, resulting prosperous, which can defeat external objects.”

(Xunzi, Wang Zhi) Morals mean justice and fairness. Implementing the welfare and
the responsibility for emissions reductions by individual units on the issue of cli-
mate will be able to achieve the target through cooperation. Unfortunately, among
large numbers of IAM (integrated assessment model), regarding the global welfare
maximum as a criterion of emission reduction does not reflect the principle of
“ranking based on morals”, which directly leads to the idea of climate colonialism.
According to the sustainable human ethics of China which has been chosen by
history in the long run, human need to identify the interests of the collective under
the climate change. The measurement and point of happiness between interests
collective are based on the individuals, namely “ranking the group”, which requires
to evaluate the collective interests on the basis of explicitness of individual inter-
ests. This is a new perspective of climate ethics. A comparison of emissions of
OECD countries and non-OECD countries has been shown up in the IPCC report. It
is quoted by the IPCC that emissions of non-OECD countries is much higher than
that of OECD’s, which seems that the non-OECD countries should take more
responsibilities. In fact, the population of the non-OECD countries is far larger than
those of OECD countries,and this classification for understanding the responsibility
is the result of “inadvisable ranking”, which can only bring about the contention
and unrest. “Once the unrest happened, it will lead to the alienation of members and
weaken the strengths, resulting the failing to defeat external objects.” Human can
not accomplish the goal of protecting the climate. Our simulation shows that taking
no emission reduction is the Nash equilibrium among national gaming facing with
climate change. No emission reduction of each country is a Nash equilibrium point
when they feel the game.
It needs to be pointed out that the thought of “harmony” and “ranking the group”
emphasize the ethics selection, which means everyone has the opportunity to
develop its strengths and access to their own fate, should be traced back to the
significance of welfare. As a result, welfare must go back to the individual. The
importance of individual is that they are the true subject of emission reduction. It is
difficult to imagine there would be the same choice of climate ethics between the
children who go to school on barefoot and carry firewood, living in the edge of Nu
River in Yunnan, China, and kids from Singapore wearing Nike shoes, sitting on a
school bus, and holding the iPad. Because their opportunity and requirement to
develop their strengths and access to their own fate are not the same. Where is the
basis for ethics of climate protection for children without survival? If the emission
reduction of China has been increased, how can the children from Nu River fulfill
the emission reduction, whose per capita consumption of carbon is low. Why they
should take on more losses than Singapore children? And their potential to achieve
the emission reduction is very low, benefits of their emission reduction are not
obvious. There is no doubt that the main responsibility for climate ethics should be
traced back to the individuals rather than remaining at the national level.
If ignoring ethical assumptions, but only from the point of view of economics,
there is a decreasing marginal value of money for each individual. This means that
from a societal point of view, giving (or taking) an extra dollar to or from a poor
8.2 The Significance of the Climate Ethics 171

person is equivalent to giving (or taking) and extra dollar to or from a rich person,
but this is far from the truth. On the issue of emissions reducing, how much the poor
and the rich should take the corresponding cost can cause unfair from the ethical
perspective if only use the economics, because their opportunity and requirement to
develop their strengths and access to their own fate are not the same and cannot get
the uniform degree of satisfaction, even betray “Everything all-win and a living”.
How much of the cost of mitigation should be borne by the poor in comparison to
what is borne by the rich? It is partly an issue of distributive justice. From the
ethical perspective, the developed countries have the compensation liability to pay
for the mitigation that takes place in poor countries.
Because of these new perspectives for climate ethics, we need to further explore
the basic issue of climate ethics.

8.3 Basic Issues of Climate Ethics

8.3.1 The Equity Principle of Climate Ethics

The primary concern of climate ethics is whether our response behavior to climate
change is fair. As we emphasized that the measurement and point of happiness
among these interest collectives are established on the individual, the principle of
climate ethics is the target of coping and ensuring the happiness of each individual.
But among the controversy of the responsibilities sharing, we only consider the
national interests rather than individual happiness and this problem had been
completely politicized throughout the years. Actually, stressing equity on national
level will harm the interests of citizens from the big countries, which is not fair.
This scheme has led a pattern that countries pursuit their emission quotas and
development opportunities, forming the basis of climate chauvinism.
Climate change mitigation demands large-scale action among various countries
over the world, but all along, as to the discussion about emission reduction, eco-
nomic analysis tells us that, for the sake of cost-effectiveness, the greatest reduc-
tions should be made where they can be made most cheaply; moreover, it also
stresses that in the ideal case, emissions should be reduced in each place to just the
extent that makes the marginal cost of further reductions the same everywhere.
Obviously, countries and regions of the lowest reduction costs are developing and
less developed areas. As mentioned above, when faced with emission reduction,
both developed and developing countries should not shirk their responsibility, but
the key point is totally different national conditions and the disparity of the eco-
nomic situation makes the developed countries should shoulder more responsibility
in emission reduction. Most of the anthropogenic Greenhouse Gas that is now in the
atmosphere has been emitted by rich countries and much of the harm that is being
done by these gases is suffered by people in poor countries. Developed countries
have made significant economic development by the accumulation of historical
172 8 Global Climate Ethics: A View Based on Chinese Philosophy

emissions, however, the basic living conditions of the poor people in the poverty
areas cannot be guaranteed. On this occasion, with the principle of “the greatest
reduction should be made where they can be made most cheaply” certainly do not
accord with Pareto criterion, and is also contrary to the “Operation by Ranking and
Grouping” belief of this chapter.
Assessment on welfare is always adopted as the criterion for equity in the
traditional climate ethics among which Ramsay function is cited as the basis for
evaluation, for example, in the work of Nordhuas (2007), Stern (2008). In these
efforts, maximized global welfare is taken as the basis for allocation of emission
mitigation. In the study of WangZheng, etc. (Wang et al. 2012), he opposes the
emission reduction allocation of maximizing global welfare which he believe will
result in a more emission qouta for developed countries and lead to seriously unfair.
In fact, the maximized global welfare can not bring about the convergence of global
individual happiness and development opportunities in the future. Developed
countries always have advanced technology, which can achieve more incremental
welfare with the same amount of carbon emissions. Realizing maximized global
welfare means that developing countries should give up the opportunities of carbon
emissions to developed countries. It is typical climate chauvinism emphasizing that
developing countries should sell the quota of carbon emissions to developed
countries to increase global welfare.
In short, humans face dilemma on the issue of climate ethics. Humans can only
identify the collective interests under the condition of climate change, and establish
the happiness measurement and happiness point of the collective interests on basis
of individual to avoid the climate chauvinism. On the other hand, humans need to
oppose the principle of the maximizing global welfare cause this means the climate
colonialism which contradicts to achieve the justice under the principle of “har-
mony priority” and “Operation by Ranking and Grouping”.
To implement the justice, we need a measurable index. It seems that the Human
Development Index from the report of UNDP can reflect the per capita equity or
fairness. However, Sen (1985) emphasizes a new concept of happiness from the
view-point of the Development Economics that the ability to obtain development is
the fundamental index to measure happiness so that mitigating climate change
should also improving the development. It requires that we should not only take the
difference of happiness we enjoyed into account which means giving everyone the
possibility to pursuit happiness, and also giving the opportunity for development. It
also implies that we need the ethics of “The man of perfect virtue, wishing to be
established himself, also seeks to establish others; wishing to be enlarged himself,
he also seeks to enlarge others” (Lun Yu, “Yong Ye”).
Although this idea of sharing the development opportunities is mainly surging in
developing countries at present, it also applies to the developed countries. If the
amount of carbon emissions that the climate could burden is seen as the basis,
Wang and Wu have calculated that developed countries have almost used up the
assigned carbon emissions quota based on the principle of egalitarian in accumu-
lated carbon emission per capita taking 1990 as the base year. From the standpoint
of happiness emphasized by Sen, it is unfair not to give developed countries carbon
8.3 Basic Issues of Climate Ethics 173

emissions opportunity, which is also seen as “Not morals” from the perspective of
traditional Chinese ethics. International community needs to recognize the ethics of
“The man of perfect virtue, wishing to be established himself, seeks also to establish
others; wishing to be enlarged himself, seeks also to enlarge others.” As the action
ethics, Xunzi’s thought of “Operation by Ranking and Grouping” is based on
“Ranking by the morals”. “Morals” is a principle of fairness and equity. It is unfair
to require developing countries to stop the industrialization efforts to obtain
development opportunities, while it is also unfair for developing countries to settle
old accounts in future, denying developed countries should have the right of
emissions, with which the Western will not agree. The genius of the Chinese ethics
lies in “Ranking by morals”. In the metaphor of wreck, the simple way of justice is
that everyone abandons the same thing. However, the same piece of luggage to the
value of each person’s welfare is not the same. Therefore, we must discuss the issue
of fairness on a broader level. We believe that in the terms of “Ranking by morals”,
by the standard of “Everything has been able to all-win and in health”, and with the
characteristic of “Operation by Ranking and Grouping”, it usually means that the
effect of emission reduction should be Pareto improvement. And after a certain
period of time, for example till 2100, the welfare of all countries will be improved,
which is the critical and viable basis for the fair emission reduction.
On the issue of equity or fairness, some countries or international organizations
tightly pegged to the total carbon emissions of China and India, and intentionally or
unintentionally overlook the high per capita consumption of carbon from some
small countries, which is fundamentally unfair. However, according to the principle
of absolute fairness which is based on the historical emissions, it means that they
can continue to make substantial greenhouse gas emissions which will exacerbate
the change of global climate. Faced with the warming of global climate, humans
can only on “Ranking the group” on the basis of “He”, considering the fairness of
comprehensive happiness based on individual and national happiness and
responsibility.

8.3.2 Justice and Responsibility

We have drawn clearly that “Ranking by morals” and “He” is the appropriate
ethical principles which have been chosen in the long-term evolutionary selection,
and human individuals and collectives enjoy equal rights on the happiness and
welfare. To implement this kind of right, another basic starting point of the climate
ethics being involved is justice, which requires scientific foundation including
response and examination of the historical emissions and raising an issue of his-
torical responsibility. At present, the fact is that the climate has already changed,
and the developing countries have been driven by developed countries on the
climate issue. Human-beings are facing with a series of events and the share of
adaptation cost caused by climate change. So just considering historical responsi-
bility can not solve the climate problem. It is a complex issue to realize the
174 8 Global Climate Ethics: A View Based on Chinese Philosophy

responsibility of all countries and all individuals to reduce the current and future
emissions of greenhouse gases on the ethical basis of “morals”, namely “Everything
all-win and a living” which needs to be further back in ethics.

8.3.2.1 Causal Responsibility and Moral Responsibility

Humans benefit from the greenhouse gas emission, in which developed countries
gain the most. Lamarque et al. (2010) pointed out, the process of industrialization in
developed countries occurred in hundred years ago also attributes to the greenhouse
effect and the change of climate. Therefore, they should assume considerable
responsibility. Dong et al. (2012) has calculated this asymmetry that 2/3 of the
responsibility for global warming comes from developed countries but some
popular mitigation schemes require developing countries to take 2/3 of the task of
emissions reduction. However, as IPCC (2007) alleged, developing countries have
relatively smaller historical responsibility but more potential CO2 emissions in the
future which should be a greater risk to future climate change. Nowadays, devel-
oping countries, with demand of economic development and relatively backward
technology and knowledge, will inevitably bring about greenhouse gas emissions
which will have impact on climate change in the future. Obviously the impact
between the two parts is asymmetric. We should understand that the asymmetry
here is the history which cannot turn back, greenhouse gas emission reduction is the
real necessary which we can not avoid.
This illustrates that the causal responsibility of historical emission factors can not
be ignored in determining the global responsibility. And due to the non-symmetry
of the issue, from the perspective of the morals of “He”, the developing countries
have a responsibility for emissions reductions and need to be involved in the
emission reduction action. The problem here is that the causal responsibility can not
be thus end. In the terms of “Ranking by morals” and with the characteristic of
“Operation by Ranking and Grouping”, those needed to assume causal responsi-
bility should take on the compensation obligation. On the previous Shipwreck
story, after the poor abandoned their last rags except last luggage, the rich have the
responsibility of giving their warm clothes to the poor, which is the completion of
responsibility for the developed countries. In the Durban climate conference, it is
pledged that developed countries will provide funds for climate protection. This is a
good starting point, however, it is not enough. From the view-point of ethics, the
developed countries should assume compensation responsibility at the first place,
which not only means the investment in capital, but also reflect in terms of tech-
nology transfer, education improvement and social relief, instead of regarding the
reducing of greenhouse gas emissions as the market opportunity for some country.
In fact, the developed countries have become the welfare state by the early
development. From the perspective of causal and moral responsibility, developing
countries should enjoy tolerance in order to protect their individual development
opportunities which mean the last chance for developing countries to realize the
“Ranking by group” and “Everything all-win and a living”, and to accomplish the
8.3 Basic Issues of Climate Ethics 175

shared responsibility of developed countries to help developing countries to com-

plete responsibility for emissions reductions. In this regard, ethics improvements is
not enough, we also need some legal protection, which gives ethical basis for
developing countries to get what they deserve according to the terms of individual
average.

8.3.2.2 Justice of Quotas

Just the causal responsibility and compensation responsibility is not enough,

climate protection requires all humanity to share responsibility. “Ranking the
group” first proposes a fair quota of greenhouse gas emissions, namely how we
allocate the quota to countries and regions fairly. There are also a lot of contro-
versies on the adoption of allocation method. First of all, whether we regard the
individual fairness as a starting point, however, will not work in a general sense. If
we trace back to the historical responsibility of developed countries, such as the
United States, the United Kingdom, and even Japan, they have exhausted their
deserved quota for a long time. It is clear that the developed countries still need the
right to pursuit their economic growth, which is acknowledged by the ethics of
“He”. At present, some countries insist on the fairness of per capita emission, and
they think the allocation should be tilted to some extent, by providing the poorest of
the population with the greatest emission right and giving minimal emissions to the
most affluent population. The drawback of this approach is that the emissions
resources would be apparently wasted, because the technology in the poorest
countries are often out-dated, leading the stagnation of world economy, which is
extremely unreasonable from the judgment principle of value. Therefore, the most
acceptable is to establish universal happiness standard, which is enjoyed by all
human beings. Under the preconditions of investment is certain, we should give full
consideration to the maximum utility or “welfare”. The quota allocation emphasizes
the justice instead of fairness.
In the actual operation of the justice standard, we must distinguish between two
choices: First, proportional allocation for emission rights, to equally distribute the
emission rights in accordance with the proportion of the population; the other is the
prioritized allocation for emission rights. Both of the two method are confronted
with controversy of varying degrees.
According to the first principle, the global emission reduction would be faced
with the challenge: the costs and benefits of greenhouse gas emissions are quite
different in various regions of the world and the various ethnic groups. And the
happiness or the so called welfare brought about by the emissions of greenhouse
gas would also be very far apart from each other. Therefore, this allocation method
is also difficult to reach an agreement. Let’s take China as an example. Xiao and
Zheng (2013) found by calculation that, taking the future requirements of the
carbon emissions into consideration, the province with the largest surplus is
Sichuan Province, followed by Henan Province. While the provinces with largest
gap is Shanxi Province, followed by Shandong, Hebei, Liaoning, Zhejiang,
176 8 Global Climate Ethics: A View Based on Chinese Philosophy

Shanghai, Inner Mongolia etc. It is easy to find that the economic core areas of
China will be suppressed and the energy basis can not get guarantee for its
development under such conditions, probably leading the turbulence for the
economy of China. However, the second allocation principle is clearly strength-
ening the unfairness. We take China as the example. The calculations of Xiao and
Zheng (2013) show that Shanghai can obtain the largest amount of emissions quota
under the allocation principle in accordance with the GDP, followed by Beijing. It
may appear the situation that the rich get richer, the poor get poorer, which is
obviously unfair, and the result is unfair.
A case of the second principle of distribution is the “Color preservation” (Yang
and Sirianni 2010). The basic idea for this principle is to allocate carbon qouta
based on the current proporation of carbon emission. The advantages of this idea is
to help to maintain the existing structure of national development, without bringing
new shocks to the world economy, which is feasible in the development economics.
But the principle of Yang and Sirianni is the result of a global welfare Optimal
Gaming, its drawback is that it does not reflect the rapid development of developing
countries and the viewpoint of the development economics that right to develop is a
kind of happiness, which needs improvement.
Usually we considered that the distribution of the ratio of greenhouse gas
emissions should be tilted to the less developed countries and regions. Suppose we
have an effective and fair global carbon trading market, the differences among
countries and regions will be correspondingly reduced (by carbon trading). This
distribution depends on how to fairly and effectively determine the amount of the
initial allocation, which also needs a scientific computing. Not very optimistic, there
is little quota can be allocated to the backward countries and regions. It is likely that
the gap between them and the developed countries will continue to exist, which will
not be narrowed. The justice of allocation can not be guaranteed. Thus we must take
a clear stand on the allocation of carbon quota to tilt to the underdeveloped
countries sometimes.

8.3.2.3 Intergenerational Justice and the Rights of Future Generations

Intra-generational justice is concerned in climate ethics as it is concerned in general

sustainable development issues. According to the theory of the sustainable devel-
opment, 遇 we think intergenerational justice includes contemporary responsibility
to future generations as well as the responsibility to Contemporary generation
(Rawls 1971). Relating to the effect of greenhouse gas emissions on the quality of
future generations’ life, some scholars, such as Caney (2006), Meyer and Roser
(2009), Wolf (2009) introduced the following ideas on the level of emissions:
(5) Future people’s basic rights include rights to survival, health and substance;
(6) These basic rights–often understood as a subset of the general and universal
moral rights whose protection is owed to all by all, i.e. as a subset of human
rights–are very likely to be violated when temperatures rise above a certain level;
8.3 Basic Issues of Climate Ethics 177

(7) Currently living people can slow the rise in temperature by limiting their
emissions, and they can do so at reasonable costs to themselves; thus,
(8) A reduction in emissions is required for currently living people to fulfill their
minimal duties of justice to future generations.
Clearly, the intergenerational justice of climate stresses that past generation,
contemporary generation and the future generation have the common right of
survival, life and development. But when they enjoy the climate resources, they
should also take responsibility for maintaining the quality of the climate resources
at the same time. If contemporary generation consume and reduce the quality of
climate resources, they ought to make reasonable compensation to future genera-
tions. In fact, intergenerational justice issues related to climate change are often
used as major weapons to remove obstacles in climate negotiations (Wang and Xu
2011).
However, it seems that this easy to be recognized issue has caused a great deal of
dispute originated from the assessment of the long-term effects of climate change.
In the analysis of the economics of climate change, the loss of economic welfare
caused by climate change is defined as Keynes–Ramsey utility function which
means: the utility is a function of the per capita consumption Ci;t =Li;t . In particular,
consumers usually consume with preference, namely there are “short-sighted”.
Therefore utility changes over time, there is a time preference, which is defined as
the rate of depreciation. Assuming that the relative risk coefficient of a unit of
consumed currency reflected by every consumer representative is s, then we get the
following:
n
XX ðCi;t =Li;t Þ1$s
UðnÞ ¼ expð$qi tÞLi;t ð8:1Þ
i t¼1
1$s

Here, Ci;t means the consumption at the stage of t, consumer groups

fCi;0 ; Ci;1 ; . . .g are subject to production resource constraints, i is the regional or
national ID, n represents the number of the age to be considered. According to the
Economic theory (Barro and Sala-i-Martin 2004), two parameters of qi and s reflect
the structure of consumer social welfare, which eventually manifested in the
depreciation rate of the capital. In recent years, climate economists dispute a lot
around the value of depreciation rate, sparking a fierce ethical debate. President of
the American Economic Association, Nordhaus (2007) from Yale University,
deemed that the value should be 0.015, with the equivalent depreciation rate of 5%.
But the Lord of United Kingdom, Stern (2008) from the London School of
Economics considered it should be 0.001, with the equivalent depreciation rate of
1.4%. Thus, Stern calculated that emission reduction should begin immediately, and
required developing countries to extend the emission reduction, otherwise the
global economic will suffer great losses although at the same time Nordhaus gave
another conclusion that developing country can start emission reduction later.
In fact, the economic growth of United Kingdom now is very slow after early
long term development which leads to the very low discount rate. On the same time,
178 8 Global Climate Ethics: A View Based on Chinese Philosophy

U.S. is still in a thriving growth period with faster discount rate. As for China, the
discount rate has been estimated at 9% if still need to keep the rapid economic
growth. From this way, Interests of future generation is reflected to the contem-
porary generation but there is still a big difference qi among different countries and
contemporary people in developing countries suffer extreme pressure. Therefore,
we suggest recognizing the interests of future generation on ethics first, and ensure
the current generation can survive especially in poor countries. No matter how to
reduce the emission, no future generation without contemporary generation’s living.
Stern’s point of view has been widely accepted by the majority of people in
European politics, but the ethics basis of Chinese “morals”, namely “Everything all-
win and a living” tend to make people adopt the viewpoint of Nordhaus. We reckon
that Nordhaus’ standpoint is more in line with the reality of the world. The old
adage says: “The children have their own blessing”, because children and grand-
children will create wealth on their own. With economic growth, the welfare of the
future may be created.

8.4 Justice of the Climate Negotiations

To achieve a global climate governance framework, rounds of negotiations and

conferences have been held under the sponsor of the United Nations. In pursuit of
the stipulations on emission quotas, the ethical justice is on demand and has entered
the focus of the negotiations, where procedural justice is required. The fundamental
proposition of procedural justice is that the decisions shall be made through a fair,
public consultation and independent from the executive parties. It is too early to
determine that the procedural justice has been secured in the global climate
negotiations, as it has been hard for the developing countries to have sufficient
numbers of social entities to representative the opinions of the majorities due to
their relatively less developed economic status. Furthermore, the rapid growth in
these developing countries has constituted challenges to the interests of the existing
commercial interests groups, who are equipped with social powers to lobby the
climate negotiations in favor of their commercial interests. Thus, some rules need to
be established for the climate negotiations. The fairness in deed may not be secured
by the procedural justice alone, as the developed countries inherit their predomi-
nance in the world economic affairs in modern history, which offers them advan-
tages over the developing countries in the international organizations to manipulate
the global climate stipulations.
To proceed on the Justice in Climate Negotiation, it is proper to look into the
characteristics of it. The nature of the decision making participants is the first factor
which will affect the justice of climate negotiations. In the climate negotiations, the
decision makers are the sovereignty countries, with equal rights to each of them. It
is this equal distribution of rights which leads to an actual unequal power sharing in
the consideration that the ethical value judgment is actually based on the interests of
each individual. The BRIC countries are often heavily blamed at the international
8.4 Justice of the Climate Negotiations 179

climate discussion, regardless of their weights in world population. Many talks

ended up without any conclusions unpleasantly, as some unions of countries small
in population exploit the rights of the heavily populated countries. Such situations
can only be improved by the awareness of “the ethical value judgment is based on
the interests of each individual. Therefore, it is reasonable to set the principle of
“operation by ranking and grouping” on the individuals at the core of negotiation
rules for international climate negotiations. This is to ensure that each country will
be treated equally. Many international incidents have proven that the residents of a
country will be driven into a worse condition of equity and justice when the country
itself is deprived of the equity and right it deserves. The equality among the
countries is rooted from the equality that can be traced down to all the individuals.
Under the theory of that the ethical value judgment should be based on the
interests of each individual, the most reasonable negotiation principle is to take all
influenced individuals into the process of the policy making (Whelan 1983).
However, this may turn out to be too extensive to be practical. Some scholars, like
Caney (2005), Dryzek (2010) suggest that the NGOs and some social activists may
representative the residents better in the policy making process. But these “book
worms” get indulged in Utopian ideas from time to time, leading the negotiation
into empty endings. It is even worse that the presentation of individual value
judgments is more from the developed countries as the NGOs are poorly developed
in the developing countries due to various economic and political reasons. On the
other side, the international community may be put into the turmoil of populism
when the governments in the developing countries advocate the NGOs on large
scales. The countries in fever of populism often obstacle the international climate
talks from any constructive results. Therefore, the negotiation rules need to be
established for the international community. The UN Security Council, consisting
of 5 permanent members in association with non-permanent members, has set a
good example of applying the practice of “operation by ranking and grouping”, for
stipulations on important world issues. This may also work well in international
climate negotiations.
The Climate Change affects everyone’s life and the counter-measures require the
collaboration of everyone. Any breach of procedural justice, which imposes the
depression on the majority of the residents on this planet, will certainly jeopardize
the people’s participation. On the contrary, a good performance of procedural
justice may educate the people about the severity of the Climate Change and
necessity of climate governance (protection?). Their expressions and participation
may also facilitate the framework on the global climate governance.

8.5 Conclusion

Active responding to the Climate Change is a common goal and mission of all
human beings. However, any concrete measures require the economic and ethical
considerations. As discussed previously in this article, Climate Change is not only a
180 8 Global Climate Ethics: A View Based on Chinese Philosophy

subject of science but also a subject in ethics research. It is not only a topic in
methodology but also a topic in cognition study. The better approach of scientific
researches on the Climate Change should integrate the studies on economic realities
as well as ethics. Based on its primary discussion on climate ethics, this article
introduced a climate ethical principle derived from Chinese traditional ethics:
On the value judgment in Climate Ethics, the responsibilities and rights should
be shared according to the ranking and grouping. The emission quotas should be
fairly distributed with reference to the development needs of each country. The
reduction of emissions shall not hurdle the Pareto Optimality of each participating
country. The foundation of the climate ethics lies in the awareness that the col-
lective interests of a group is based on the individual interests in the group. People
need to distinguish the parties of interests under the influence of the Climate
Change, along with the wellbeing and measures of happiness of each party. The
judgments on values should be made on the basis of the individual benefits, with
regard to the Climate Change.
Furthermore, the article discussed about the Climate Ethical Criteria—
Equity/Justice and Values, and analyzed the ethical definitions of justice and values
in Climate Ethics. Thus, it proposed the Justice of Climate Ethics should be realized
in distinguishing the causal and moral factors in the sharing of responsibilities, the
stipulation of fair quotas and the integration of the interests among the existing and
upcoming generations. The article explicated the justice in the climate negotiations
in these captioned aspects and suggested that some climate proposals from the
developed countries are inappropriate in ethics.
In short, we suggest an international ethical principle on climate issues: all the
positive measures on climate governance or against the Climate Change should
promote the economic and social development, as well as narrowing the gaps
among the countries, without depressing the social individuals which are being poor
deeper into poverty. The equity and justice for every individual should be on the
focus of the international climate policy-making. The residents of a country will be
driven into a worse condition of equity and justice when the country itself is
deprived of the equity and right it deserves. Any such climate governance policy or
measures against the Climate Change will certainly hurdle the willingness of these
people to participate, and thus non-practical nor sustainable.

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