The geopolitics of climate policy

A major problem in international negotiations on controlling global warming has been the division of responsibilities between developed and developing countries. Geographically, developed countries tend to be in the northern hemisphere and developing countries in the south, so let’s refer to the two groups as N and S. Developed countries (N) are the source of much of the emissions but some people believe that developing countries (S) could reduce their emissions more easily. At the same time, people in N seem to care the most about controlling global warming while people in S are much more worried about economic growth and development.

1. Suppose that each person in N is willing to pay $0.01 (one cent) per unit of greenhouse gas emissions abated in order to prevent global warming. Each person in S is not willing to pay anything. In addition, suppose that current emissions are about 6,000 units and that global warming will be completely prevented if emissions are reduced to 5,000 units. If there are one billion people in N and four billion in S, what is the marginal social benefit of abating greenhouse gas emissions? Draw an appropriate graph and explain how you got your answer.
   
2. Now suppose that the marginal cost of abating greenhouse emissions in N is $8 million per unit (that is, MCn = $8 million) and the marginal cost of abating emissions in S is given by MCs = $10,000Qs. What is the efficient amount of abatement in each country? What is the total amount of abatement? Be sure to show your work.
3. What is the total cost of abatement to each country in part (2)? What is the total benefit to each? Is this policy likely to be popular in N? In S? If not, what could you do to improve the situation? Discuss.