GHG Emissions, Lobbying, Free-Riding, and Technological Change

This document examines GHG emission policy in a world where labor and emissions are complementary in production, world-wide emissions decrease welfare, and total factor productivity can be locally improved by devoting labor to R&D. A subset of the countries can establish an “abatement coalition” where an international agency grants non-traded or traded GHG permits. This agency is self-interested, subject to lobbying, and has no budget of its own. The results are the following. The establishment of the “abatement coalition” enhances welfare, promotes economic growth and diminishes emissions both inside and outside the coalition. Without technological change, emission permit trade does not make any difference. With technological change due to R&D, the agreement with emission permit trade is Pareto worsening.