Global Carbon Pricing: A Better Climate Commitment

27 Pages Posted: 26 Nov 2009 Last revised: 26 May 2014

See all articles by Peter Cramton

Peter Cramton

University of Maryland - Department of Economics

Steven Stoft

Retired Economist

Date Written: December 6, 2009

Abstract

Developing countries reject meaningful emission targets (recent intensity caps are no exception), while many industrialized countries insist that developing countries accept them. This impasse has prevented the Kyoto Protocol from establishing a global price for greenhouse gas emissions.

This paper presents a solution to this dilemma - allow countries to commit to a binding global carbon-price target. This commitment could be met by cap and trade, a carbon tax, or any combination. This would allow developing countries to accept the same carbon price as the most advanced countries instead of accepting a cap that is as low as U.S. emissions in the 1800s. And it would allow the U.S. and the E.U. to keep their cap and trade schemes. The paper defines a carbon-price target, and shows how compliance could be induced using both carrots and sticks.

We also demonstrate that carbon pricing can be guaranteed to be inexpensive under a carbon-price target. A Green Fund is suggested that reinforces rather than subverts cooperation on global carbon pricing. The combined cost of a $30/ton price target and the Green Fund is only 23 cents per person per day for the United States and is negative for India. Together, these advantages should greatly increase the chance that developing countries will commit to a substantial carbon price, and this should increase the chance of cap and trade passing the U.S. Senate.

Such a policy would also reduce the world oil price. For China and the United States, this savings might well cover the full cost of the proposed initial climate agreement.

Keywords: climate change, global warming, Copenhagen, Kyoto, carbon tax, cap and trade, green fund, carbon pricing, China, OPEC, greenhouse gas

JEL Classification: Q28, Q38

Suggested Citation

Cramton, Peter C. and Stoft, Steven, Global Carbon Pricing: A Better Climate Commitment (December 6, 2009). Global Energy Policy Center Research Paper No. 09-06; The Interaction of Law, Biology & Ecnomics in the Areas of Property, Economy & Environmental Protection Paper. Available at SSRN: https://ssrn.com/abstract=1512722 or http://dx.doi.org/10.2139/ssrn.1512722

Peter C. Cramton

University of Maryland - Department of Economics ( email )

College Park, MD 20742
United States
301-405-6987 (Phone)
301-405-3542 (Fax)

Steven Stoft (Contact Author)

Retired Economist ( email )

2910 Elmwood Court
Berkeley, CA 94705
United States
(510) 644-9410 (Phone)

HOME PAGE: http://stoft.com

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