One of the principal items on the agenda of the US Secretary of the State’s visit to India was facilitating a transition in India’s position on climate change to accepting a global emissions trading scheme (ETS). It is becoming increasingly clear that significant carbon reduction on the part pf the developed world would be conditional on the carbon policies of other countries, particularly the high polluting fast developing countries such as China and India. The ETS is no longer going to be confined to one country or a group of countries but is likely to go global. The global ETS agenda is likely to be pushed forward considerably in Copenhagen and in subsequent policy actions.

The global ETS is likely to involve the setting of firm limits to global carbon emissions whereas the spatial distribution of emissions will be affected by international trade in carbon permits. However, whereas economists and policymakers have debated the impact of the global ETS on the quantum of carbon emissions and what this means for the global environment, very little attention has been paid to the macroeconomic and developmental implications of the global ETS, particularly the effects on developing countries. This article is an attempt to articulate some of these effects and glean their policy implications.

By definition, the global ETS would involve international trade in permits for carbon emissions. Typically, economically developed, high carbon (at least in per capita terms) countries would buy carbon emission permits from the economically poorer, low carbon (again at least in per capita terms) countries. This would involve a transfer of funds from the richer to the poorer countries and a concomitant commitment from the latter to restrict carbon emissions whereas the former would be able to emit more carbon than would have been possible in a world with firm quantitative restrictions on emissions but no global ETS.

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