University of Helsinki
This document examines the GHG emission policy of regions which use land, labor and emitting inputs in production and enhance their productivity by devoting labor to R&D. The problem is to organize common emission policy, if the regions cannot form a federation with a common budget and the policy parameters must be uniform for all regions. The results are the following. An agreement of the self-interested central planner that allocates
emission caps in fixed proportion to past emissions (i.e. grandfathering) leads to the Pareto optimum, decreasing emissions and promoting R&D and economic growth.