Ratcheting up Paris

Journal

European Economic Review

Authors

Llavador H, Roemer J, Stoerk T*

*The starred author is a contributor from the Grantham Research Institute

Abstract

The Paris Agreement is designed to increase climate ambition gradually through a process of ratcheting up. What is the plausible endpoint of this process? To answer this question, the paper develops a tractable integrated assessment model in which countries interact through a decentralized general equilibrium and negotiate unanimously over a global carbon budget, with all mitigation implemented via a global carbon price. It proves the existence and uniqueness of a unanimous international agreement on global emissions, in which carbon pricing revenues are redistributed across countries in proportion to marginal climate damages. In a quantitative application for 154 countries, the resulting equilibrium limits global mean surface temperature change to 1.51°C, at a carbon price of 320 USD/tCO₂. The associated international transfers of carbon pricing revenue are progressive toward lower-income countries and amount to about 0.8% of global GDP annually, an order of magnitude larger than the Paris Agreement’s climate finance target.

DOI: 10.1016/j.euroecorev.2026.105488