Penalty tariff rate 0 percent 4 percent TABLE 1-EFFECTS OF PARTICIPATION IN NUMERICAL EXAMPLE -11.9 -11.9 US is participant Abatement Damages Trade 10.7 10.7 0.0 36.7 Net benefits -1.2 35.5 Abatement -0.3 -0.3 US is not a participant Damages 7.3 7.3 Trade 0.0 -15.6 Net benefits 7.0 -8.6 Net effect of participation -8.2 44.1 Notes: This table provides an illustration of the economic effects of participation for the US with and without a pen- alty tariff. The difference between the two lines is the impact of the penalty tariff. With a penalty tariff, the global externality is effectively internalized, giving incentives for self-interested countries to participate in the Climate Club. Figures in billions of 2011 US$ from the C-DICE model below for a global SCC of $25 per ton of CO₂. ole 1 is from Nordhaus (2015). Use the information provided to answer 1-4 1. What is the net benefit of participating in the climate agreement if there is no tariff? 2. What is the net benefit of not participating in the climate agreement if there is no tariff?

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