Enhancing climate pledges with less competitiveness impacts: A comparison of multiple schemes

Ratcheting-up of countries’ Nationally Determined Contributions (NDCs) is urgently needed to keep the Paris Agreement’s 2 °C goal within reach. However, unbalanced climate policies may lead to inequitable impacts on trade and competitiveness, which is becoming a major obstacle for countries to advance ambitious climate actions. To address this problem, we propose an NDC enhancement scheme based on cost-fair differentiated carbon pricing mechanism (DCPM). Using a global computable general equilibrium model, we compare the proposed DCPM-based scheme with another two reference NDC enhancement schemes (i.e., the constant emissions ratio scheme, and the uniform global carbon price scheme) in terms of their impacts on competitiveness and regional welfare. The results show that, with the joint global target being identical, the DCPM-based scheme results in more equitable competitiveness impacts than the other two schemes. It also performs better in balancing regional welfare impacts and promoting progressive burden-sharing. The DCPM-based scheme can provide helpful guidance for countries to reconcile their competitiveness concerns and to coordinate climate policies while achieving enhanced climate goals.