Pareto improvement through a reallocation of carbon emission quotas

This article presents a methodology that discusses a reallocation of carbon emission quotas based on the ZSG-DEA model, also introduces the process of solving the ZSG-DEA model in extensive detail and derives Theorems 1 and 2. Theorem 1 shows the equivalence in competition and the cooperation case, while Theorem 2 indicates the correlation between quota adjustment and efficiency change. Through this ZSG-DEA model, the determination of carbon emission quotas is no longer subjective, and reasonable carbon emission quotas among countries can be obtained. The reallocation of carbon emission quotas can not only ensure that all countries have 100% efficiencies, but also help all countries gain through Pareto improvement. The conclusions of this paper are that most developed countries should increase their carbon emission quotas and that most less developed countries need to reduce theirs, including the two most populous countries of China and India. The reallocation process should be paid by selling the quotas of low efficient countries so that they can obtain funds to support their development, while at the same time high efficient countries can produce more due to relaxation of environmental constraints, thus achieving global Pareto improvement. (C) 2015 Elsevier Ltd. All rights reserved.