By German Advisory Council on Global Change (WBGU)
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Extra info for Solving The Climate Dilemma: The Budget Approach
International emissions trading allows and encourages a very wide range of bilateral and multilateral transactions. For example, trading allows industrialized countries that have used up almost all their CO2 budget to purchase allowances, but also boosts the incentives for countries to reduce their own emissions. Substantial capital flows are generated for the developing countries and here too, incentives are created for emissions reductions, as CO2 budget surpluses can be traded and monetized.
From the above clusters of interests, it becomes apparent, firstly, that an historic climate partnership between Group 1 countries (essentially the industrialized countries) and Group 3 countries (essentially today’s poorest countries) is vital in solving the climate problem. They will operate on the principle of technology and financial transfers in exchange for ‘budget surpluses’. The ‘donors’ and ‘recipients’ who have traditionally been the key actors in development cooperation thus become partners with mutual interests.
In par- ticular, it is essential to ensure that individual countries do not make wasteful use of their CO2 emission allowances in early phases of the budget period and thus become ‘carbon-bankrupt’ later – a process that can be further strengthened by technological lock-in effects. National decarbonization road maps are an effective means of preventing such misguided development trajectories. These road maps should be guided not only by the allocated CO2 budgets, but also by national capacities to reduce emissions, as in order to comply with the 2 °C guard rail it will be essential to make maximum use of all globally available abatement options (McKinsey, 2009b).