Price is a Better Climate Commitment

The Economists' Voice, Vol. 7, No. 1, Article 3

6 Pages Posted: 26 Dec 2009 Last revised: 20 Feb 2010

Peter Cramton

University of Maryland - Department of Economics

Steven Stoft

Retired Economist

Date Written: January 14, 2010

Abstract

Developing countries reject meaningful emission targets (recent intensity caps are no exception). This prevents the Kyoto Protocol from establishing a global price for greenhouse gas emissions and leaves almost all new emissions unpriced.

This paper proposes a new pair of commitments – a commitment to a binding carbon-price target and to a Green Fund financed by a form of carbon pricing. The result is a price mechanism that neither requires developing countries to accept emission caps nor requires industrial countries to accept carbon taxes.

We demonstrate that the cost of complying with these commitments can be guaranteed to be inexpensive. 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. 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.

Keywords: Copenhagen, Kyoto, climate change, global warming, emission caps

Suggested Citation

Cramton, Peter and Stoft, Steven, Price is a Better Climate Commitment (January 14, 2010). The Economists' Voice, Vol. 7, No. 1, Article 3. Available at SSRN: https://ssrn.com/abstract=1527268 or http://dx.doi.org/10.2139/ssrn.1527268

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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