IPCC Fourth Assessment Report: Climate Change 2007
Climate Change 2007: Working Group III: Mitigation of Climate Change Cost-effectiveness

A cost-effective international agreement would minimize global and national costs and provide participating sovereign nations with sufficient flexibility to reach their commitments in a fashion tailored to their national needs and priorities. To achieve this, agreements would need to avoid being prescriptive in its actions but, instead, leave room for the implementation of the target, (e.g. while reducing emissions in different sectors or reducing the emissions of different gases, they should not create significant distortions in competitiveness between countries).

Many analysts argue that the most cost-effect system would be one which enables emission trading with the broadest possible participation of countries. Such a system would allow the emission reductions to occur in those countries, sectors and gases where they can be achieved at the lowest cost. An approach based on specific policies and measures would have to be designed carefully to be as efficient as an emission trading system. The flexibility provided to private actors in a trading regime also increases the system’s cost-effectiveness. Distributional considerations, including equity

Perhaps the most politically charged issue in international negotiations is that of equity. Whether a system of national emission targets within an international agreement can be conducive to social development and equity depends on participation and the initial allocation of emission rights. For example, Pan (2005) suggests that all countries should participate – but that emissions associated with basic needs should be exempt from limits, while emissions associated with luxury activities should be constrained. Conversely, Gupta and Bhandari (2003) suggest that in the initial stages of an agreement, obligations should only be assigned to a limited set of (wealthier) parties. Exemptions to sectors or countries and modifications to the allocation of obligations can help address equity issues.