(Continued from front page)
Review. We have seen that the pledge-and-review approach to negotiations, which has been followed for the last 20 years, has drifted from moderate cooperation to near-zero cooperation. This was predicted experimentally and theoretically. China’s pledge, which exhibits zero ambition, indicates a continuation of the predicted outcome.
The Price-Negotiation Game is different from the quantity-pledging game, mainly because there is a single common price that will apply to all countries. If you could raise the price, it would cost you money, just like if you pledge to abate more. The difference is that if the price goes up, everyone else must set a higher price and abate more. That is not true in quantity-pledging negotiations.
- With caps, you lose money if you show ambition.
- With a price, you lose nothing if you show ambition.
With individual emission caps, each country wants to have a high (weak) cap and wants all others have a low (strong) cap. This results in all countries advocating ambition for others, while doing little themselves. It is not, as the press often claims, a game of “You go first, no you go first,” it is worse. It is a game of “You go, and I won’t.”(1)The Europe is the one partial exception to this, but unfortunately, this simple encourages others to free-ride more. A mere timing issue would be easily solved by taking small steps.
There’s much more
The essence of the climate problem is free-riding and cap-and-trade only monetizes the problem.(2)With global cap and trade, countries pledge less abatement so they can buy fewer permits or sell more permits. But their actual abatement is determined by the global price of permits and not by their pledge—which has almost no effect on their actual abatement. So pledging is focused on the monetary costs or benefits of trading permits. Without a solution, negotiations will remain stuck. And only a global commitment to a single price can crack the free-rider problem.
But there are other benefits of global carbon pricing, which are revealed in a number of papers provided in our library and on the “Experts” pages. These ideas are explained more succinctly in our FAQs section, which describes the complete package. Just to give a sense of its breadth, here are a few other aspects of a possible price-commitment treaty.
- Inherent fairness compared to caps:
- Capping the US at 20% below its current emissions in ten years is not much of a burden. The same cap applied to India would be devastating, would in fact cap India at the US emissions level in about 1850 (not 1950).
- But if India and the US accept the same price, India can emit just as much as the US. And, while its emissions are less, it will be burdened proportionally less than the US as it should be.
- National flexibility:
- China and India don’t need to accept caps far below US emissions levels.
- Countries can avoid needing to buy carbon credits from others.
- A Green Fund:
- “Common but differentiated responsibilities” can be satisfied.
- Poor countries will be encouraged join the common pricing effort.
- Rich countries will see a clear benefit to payments and will be more generous.
- A global price will make border carbon adjustments unnecessary.
References [ + ]
|1.||↥||The Europe is the one partial exception to this, but unfortunately, this simple encourages others to free-ride more.|
|2.||↥||With global cap and trade, countries pledge less abatement so they can buy fewer permits or sell more permits. But their actual abatement is determined by the global price of permits and not by their pledge—which has almost no effect on their actual abatement. So pledging is focused on the monetary costs or benefits of trading permits.|