A Proposal to Integrate Price Mechanisms into International Climate Negotiations

Abstract

The Parties to the United Nations Framework Convention on Climate Change continue their efforts to forge a new binding international agreement by 2015. This article proposes to adapt international negotiations to allow for hybrid price and quantity-based commitments. The economic risks surrounding target-only commitments — the current approach — are enormous. Combining a clear cumulative emissions target with price-based limits on the cost associated with achieving that target would reduce those risks, ensure that commitments by Parties remain feasible and reduce the chance that the agreement would collapse. Moreover, we argue that adding prices into the agreement offers transparent and verifiable assurance of the comparability of effort across countries. Finally, we also show that it is possible to calculate ‘carbon price equivalents’ of quantity-based climate commitments in a conceptually similar way to the tariff equivalents used in international trade negotiations.

Keywords: climate policy; uncertainty; price collar; UNFCCC; carbon price equivalence