A Global Carbon Tax to Compensate Damage and Adaptation Costs

We analyze the implications of a global carbon tax on CO2 to finance the damage and adaptation costs of developing countries (DCs) using the computable general equilibrium model GEMINI-E3. We considered two options, first, that the tax is only applied to industrialized countries and secondly, that the tax is charged globally. We conclude that a scheme that puts the entire tax burden on the industrialized countries would not be a feasible policy strategy. Furthermore, it would be more likely that industrialized countries accept to finance adaptation because it entails a lower financial burden and might foster emission reductions in DCs.