Kyoto's Climate Game and How to Fix it

Global Energy Policy Center Issue Brief No. 10‐08

6 Pages Posted: 29 Aug 2010

See all articles by Peter Cramton

Peter Cramton

University of Maryland - Department of Economics

Steven Stoft

Retired Economist

Date Written: August 28, 2010

Abstract

The Kyoto summit initiated an international game of cap and trade. Unlike a national policy, the essence of this game is the self-selection of national emission targets. This differs from the standard global public-goods game because targets are met in the context of a global carbon market. This changes the outcome of the notoriously uncooperative public-goods game.

The equilibrium of the new game may increase or decrease total abatement. If it increases abatement the resulting carbon price will be no greater than the average public-goods price. Typically, high abaters in the public goods game will target more abatement in the cap-and-trade game, while low abaters will target less.

Given such a dismal outcome the policy game should be changed to the global price-target game. In the same setting where cap-and-trade reduces abatement, this game induces optimal abatement. But, realistically, it must include a Green Fund whose strength is linked to the price target. This will induce poor countries to favor as high a price target as rich countries, reversing the polarizing and anti-cooperative tendencies of cap and trade.

Keywords: Cap and Trade, Climate Change, Public Goods, Copenhagen, Kyoto, Carbon Tax, Green Fund, Carbon Pricing, Global Warming

JEL Classification: C72, C70, D62, H41, H40, Q25, Q54, F00

Suggested Citation

Cramton, Peter C. and Stoft, Steven, Kyoto's Climate Game and How to Fix it (August 28, 2010). Global Energy Policy Center Issue Brief No. 10‐08. Available at SSRN: https://ssrn.com/abstract=1667612 or http://dx.doi.org/10.2139/ssrn.1667612

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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