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Replication code and data for:M. B. Budolfson, F. Dennig, F. Errickson, S. Feindt, M. Ferranna, M. Fleurbaey, D. Klenert, U. Kornek, K. Kuruc, A. Méjean, W. Peng, N Scovronick, D. Spears, F. Wagner, and S. Zuber, “Climate Action with Revenue Recycling Has Benefits for Poverty, Inequality, and Wellbeing”.Nature Climate Change(2021). https://github.com/Environment-Research/revenue_recyling

Preserving environmental quality and addressing economic inequality both feature prominently in public discourse. Neither of these two issues can be fully understood in isolation, and policies aiming at one issue will increasingly have to consider interactions with the other. We synthesize theoretical mechanisms that underpin inequality-environment interlinkages, and take stock of the empirical evidence. Our review is structured into four main blocks, describing, first, how the distribution of environmental amenities and dis-amenities is associated with income and wealth, second, how economic inequality affects environmental outcomes, third, how the cost of environmental policy is often borne unequally, and, fourth, how both the distribution of environmental quality and economic inequality shape welfare considerations underlying public policy appraisal. We argue that it is crucial to consider inequality-environment interlinkages even if one’s primarily concern is one or other of these issues, and close by highlighting a number of areas for future research.

A sizeable body of literature on climate economics utilizes the notion of inequality aversion. We review and synthesize published estimates of inequality aversion to guide this literature. We review both axiomatic and empirical studies, accordingly our findings draw on different lines of evidence. In the former case, a variety of ethical principles underlie the recommendations for positive inequality aversion. The latter studies use various methods to present estimates based on some form of "revealed ethics," for example by looking at existing progressive income tax-schedules or the level of foreign aid. Here we find strong support for the view that inequality aversion is positive (but potentially small) and very little support for any value larger than three. The vast majority of studies that look at domestic policies support values between one and two, whereas studies that look at foreign aid find lower values ranging from above zero to unity.

Global mitigation efforts remain insufficient to limit the global temperature increase to well below 2 °C. While a growing academic literature analyzes this problem, perceptions of which obstacles inhibit goal attainment and which responses might be most effective seem to differ widely. This makes prioritization and agreement on the way forward difficult. To inform prioritization in global climate policy and research agendas, we present quantitative data on how 917 experts from the IPCC and the UNFCCC perceive the importance of different obstacles and response options for achieving 2 °C. On average, respondents consider opposition from special interest groups the most important obstacle and technological R&D the most important response. Our survey also finds that the majority of experts perceives a wide range of issues as important, supporting an agenda that is inclusive in terms of coverage. Average importance ratings differ between experts from the Global North and South, suggesting that balanced representation in global fora and regionally differentiated agendas are important. In particular, opposition from special interest groups is a top priority among experts from North America, Europe and Oceania. Investigating the drivers of individual importance ratings, we find little difference between experts from the IPCC and the UNFCCC, while expert's perceptions correlate with their academic training and their national scientific, regulatory, and financial contexts.

The social cost of carbon is the central economic measure for aggregate climate change damages and functions as a metric for optimal carbon prices. Previous literature shows that inequality significantly influences the level of the social cost of carbon, but mostly neglects a major source of inequality - heterogeneity in income below the national level. We characterize the relationship between climate and redistributional policy in an optimal taxation model that explicitly accounts for inequality between and within countries. In particular, we demonstrate that climate and distributional policy cannot be separated when national governments fail to compensate low-income households for climate change damages: Even if only one country does not compensate especially affected households, the social cost of carbon increases globally. Further, we use numerical methods to estimate the scope of these effects. Our results suggest that it is crucial to correct previous estimates of the social cost of carbon for national distributional policies.

Decarbonizing the global energy system requires large-scale investment flows, with a central role for international climate finance to mobilize private funds. The willingness to provide international finance in accordance with common but differentiated responsibilities was acknowledged by the broad endorsement of the Paris Agreement, and the Green Climate Funds in particular. The international community aims to mobilize at least USD 100 billion per year for mitigation and adaption in developing countries. In this article, we argue that too little attention has been paid on the spending side of climate finance, both in the political as well as the academic debate. To this end, we review the challenges encountered in project-based approaches of allocating climate finance in the past. In contrast to project-based finance, we find many advantages to spending climate finance in support of price-based national policies. First, the support for international climate cooperation is improved when efforts of successively rising domestic carbon pricing levels are compensated. Second, carbon pricing sets incentives for least-cost mitigation. Third, investing domestic revenues from emission pricing schemes could advance a country's individual development goals and ensure the recipient's ‘ownership’ of climate policies. We conclude that by reconciling the global goal of cost-efficient mitigation with national policy priorities, climate finance for carbon pricing could become a central pillar of sustainable development and promote international cooperation to achieve the climate targets laid down in the Paris Agreement.

Internationale Umweltabkommen wurden und werden verhandelt, um fortschreitenden Klimawandel zu begrenzen. Kooperation ist erforderlich, da durch die Reduzierung von Treibhausgasemissionen ein globales öffentliches Gut bereitgestellt wird und steigende Temperaturen nur durch globale Anstrengungen vermieden werden können. Allerdings erschweren Trittbrettfahreranreize freiwillige Emissionsreduktionen von souveränen Staaten. Die vorliegende Arbeit befasst sich mit der Frage, wie Kooperation beim Klimaschutz unter verschiedenen Gestaltungen eines internationalen Vertrages trotz Trittbrettfahreranreizen zustande kommen kann. Die Arbeit verwendet integrierte Bewertungsmodelle, um regionale Kosten und Nutzen von Emissionsvermeidung zu quantifizieren, und identifiziert Regionen, die von internationaler Kooperation profitieren, sowie potentielle Verlierer. Die numerischen Modelle zeigen, dass Transferzahlungen zwischen Ländern Kooperation fördern könnten, sodass die Lücke bzgl. globaler Wohlfahrt zwischen voller Kooperation und Abwesenheit von Kooperation etwa zur Hälfte geschlossen werden könnte. Die Höhe der erforderlichen Zahlungen ist dabei vergleichsweise moderat, was aus Modellannahmen bzgl. der Kosten und des Nutzens von Vermeidung folgt. Anschließend untersucht die Arbeit die Implementierung der finanziellen Leistungen. Mögliche negative Konzequenzen der Transferzahlungen werden identifiziert, die das Potential haben, Kooperation zu erschweren. Moderate Zahlungshöhen erweisen sich auch hier als vorteilhaft, indem sie die potentiellen negativen Effekte für Empfängerländer begrenzen, die besonders bei Transferleistungen, die auf Gerechtigkeitsmotiven beruhen, wichtig werden. Die Festlegung von moderateren Zielen könnte auch in Bezug auf zwei andere Elemente eines Vertrages förderlich für Kooperation sein: (i) die Einbeziehung von unbegrenztem Emissionshandel mit Ländern ohne Reduktionsziele und (ii) die Festschreibung von Vermeidungszielen durch feste Emissionsreduktionen. Die Arbeit zeigt, dass beide Gestaltungen eines internationalen Klimavertrages dazu führen, dass die Koalition für zusätzliche Wohlfahrtssteigerungen zahlt. Obwohl die globale Wohlfahrt zunimmt, werden Trittbrettfahreranreize größer. Demnach reduziert ein Vertrag, der (i) die Menge an Zertifikaten im Emissionshandel begrenzt oder (ii) die Implementierung einer Emissionssteuer vorsieht, Trittbrettfahreranreize. Die Arbeit zeigt, dass sowohl Abkommen mit ambitionierten oder mit moderaten Zielen zu höherer globaler Wohlfahrt führen können, abhängig von Parameterwerten in den Modellen. International environmental agreements have been and are negotiated to facilitate mitigation efforts on climate change. To avoid severe impacts, global cooperation is required as the reduction of greenhouse gas emissions represents a global public good. However, free-riding incentives impede the voluntary contribution of abatement by sovereign countries. The present thesis studies how climate cooperation could advance under different treaty designs in the face of free-riding incentives. The thesis uses integrated assessment models to quantify regional differences with respect to costs and benefits from mitigating climate change and identifies regions that gain from cooperation as well as potential losers. Within the numerical models, transfers are found to enhance cooperation such that stable agreements could close the gap between full cooperation and no cooperation roughly half with respect to global welfare. The magnitudes of transfer payments show comparably moderate magnitudes resulting from modeling assumptions on costs and benefits of mitigation. Following this assessment, the thesis studies the implementation of payments. Adverse effects of transfers are identified which have the potential to impede cooperation on climate change. Moderate magnitudes of transfers are found to be of advantage by limiting the potential adverse effects on recipient countries, for which negative consequences could especially be relevant when transfers are based on equity considerations. Defining the obligations of a treaty in a more moderate way might enhance cooperation also with respect to two other design options: (i) including unrestricted emissions trading with countries that do not have abatement targets and (ii) formulating the obligations of a treaty in emission assignments. The thesis finds that both treaty design options imply additional welfare gains for which the coalition pays and that no country can be excluded from. While global welfare is enhanced, free-riding is likely to become more attractive. In turn, (i) restricting the amount of emission permits in the market for the coalition or (ii) basing a treaty on emission taxes may enhance the participation in the agreement because welfare gains for free-riders are reduced. However, the thesis finds that both agreements under ambitious or moderate obligations could be more successful with respect to global welfare depending on modeling parameters.

We investigate how different designs of carbon offset mechanisms, like the Kyoto Protocol's Clean Development Mechanism (CDM), affect the success of self-enforcing climate treaties. In a game-theoretic numerical model of coalition formation we find that participation in the agreement is negatively affected when strategic behavior and free-rider incentives matter. This does not change when selling targets restrict credit supply. Substantially higher participation emerges when the treaty restricts its signatories not to use the gains from credit trading to lower their emission caps. Despite the high sensitivity of participation to different CDM design, we find that global welfare levels achieved in various equilibria are remarkably similar.

To study the stability of coalitions in the standard game theoretic model of international environmental agreements, two alternative concepts are used: potential internal stability and core stability. Both concepts make use of the possibility of reallocating payoffs within a coalition through transfers, formulated in terms of transferable utility among the players. For international applications where players are countries, such as done in the growing literature on integrated assessment models, non-transferable utility games would be economically better suited. In this note, we provide a framework for comparing the treatment of coalitions in five game theoretically minded integrated assessment models, from that point of view. Under way, we extend the definition of the two stability concepts to games without transferable utility, assuming instead the transferability of some physical good. We also show that potential internal stability and blocking power of coalitions can be tested by solving a simple optimization problem.

In this paper we report results from a comparison of numerically calibrated game theoretic integrated assessment models that explore stability and performance of international coalitions for climate change mitigation. Specifically, by means of this ensemble of models we are able to identify robust results concerning incentives of nations to commit themselves to a climate agreement, and to estimate what stable agreements can achieve in terms of greenhouse gas mitigation. We also assess the potential of transfers that redistribute the surplus of cooperation in order to foster stability of climate coalitions. In contrast to much of the existing analytical game theoretical literature, we find substantial scope for self-enforcing climate coalitions in most models that close much of the abatement and welfare gap between complete absence of cooperation and full cooperation. This more positive message follows from the use of transfer schemes that are designed to counteract free riding incentives.