Constraining equitable allocations of tradable CO2 emission quotas by acceptability

Since the signing of the Kyoto Protocol, future commitments are likely to be framed in terms of tradable quotas. The discussions on the allocation of the quotas among countries will be based - at least partly - on rules corresponding to a certain conception of equity. For instance, allocating quotas in direct proportion to population, in relation to GDP or according to past emissions has been advocated. Taking a long term perspective, we compute such allocations of tradable quotas with a dynamic (closed-loop) model. The total amount of quotas to be distributed at each period corresponds to the world optimal amount of emissions to be realized at each period. We observe that most "equitable" allocation rules do not make the agreement individually rational for every country along the entire time path. We then propose a mechanism which determines allocations of quotas that are as close as possible to any "equitable" allocation while satisfying individual rationality.