An equitable, efficient and implementable scheme to control global carbon dioxide emissions

We design an international scheme to control global externalities in which autonomous regions choose their own emissions levels in anticipation of interregional resource transfers implemented by an international agency. This agency follows a proportional equity principle, which preserves the status-quo ratio of regional welfare levels. We show that it is individually rational for each region to participate in the proposed international scheme and that regional environmental authorities choose policies that fully internalize the global externality. Although based on an admittedly ideal scheme, these results are especially noteworthy in light of the call for various forms of transfers in international agreements such as the Kyoto Protocol.