Joseph Stiglitz, is a professor at Columbia University and recipient of the Nobel Memorial Prize in Economic Sciences (2001) and the John Bates Clark Medal (1979). He is a former senior vice president and chief economist of the World Bank, and is a former member, and Chairman of the Council of Economic Advisers.
Summary of Carbon Pricing Views
Global warming is a global problem, yet no one wants to pay to fix it. Everybody wants a free ride on the efforts of others. … Perhaps it is time to try another approach: a commitment by each country to raise the price of emissions (whether through a carbon tax or emissions caps) to an agreed level, say, $80 per ton.
Setting target levels is so contentious because allowing a country high emission levels is tantamount to giving it money. … The big advantage of [pricing] over the Kyoto approach is that it avoids most of the distributional debate.
2010-01 Stiglitz, Joseph, “Overcoming the Copenhagen Failure,” (2 pp.) Project Syndicate.
2006-07 Stiglitz, Joseph, “A New Agenda for Global Warming,” (4 pp.) The Economists’ Voice, 3.7.
Fundamentals of Global Carbon Pricing:
1. The International Climate Problem Is a Free-Rider Problem
Global warming is a global problem, yet no one wants to pay to fix it. Everybody wants a free ride on the efforts of others. But it is in everybody’s interest that the world act collectively to do something. [2006-09]
2. A Global Carbon Price Is Needed for Climate Negotiations
There is a way out, and that is through a common (global) environmental tax on emissions. Alternatively, each country could keep its own revenues and use them to replace taxes on capital and labor: it makes much more sense to tax “bads” (pollution, like greenhouse gas emissions) than to tax “goods,” like work and saving. [2006-07] / The way to do this is to have all the countries of the world impose a common tax on carbon emissions. [2006-09]
3. Cap-and-Trade Can Comply
“Perhaps it is time to try another approach: a commitment by each country to raise the price of emissions (whether through a carbon tax or emissions caps) to an agreed level, say, $80 per ton.” (Overcoming the Copenhagen Failure, 2010-01)
4. Green Fund Transfers Are Essential
I argue that these commitments by themselves will remain largely gestures unless the rest of the world can be brought along. This may entail significant assistance to developing countries; it also entails getting tough with the United States. [2006-09]
1. A Price Simplifies Negotiations
Setting target levels is so contentious because allowing a country high emission levels is tantamount to giving it money. [2006-09]
The big advantage of taxation over the Kyoto approach is that it avoids most of the distributional debate. Under Kyoto, getting the right to pollute more is, in effect, receiving an enormous gift. … Norway might claim that because it uses hydroelectric power, the scope for reducing emissions is lower. France might claim that because it has already made the effort to go into nuclear energy, it should not be forced to reduce more. Under the common tax approach, these debates are sidestepped. All that is asked is that everyone pay the social cost of their emissions. [2006-07] / If the Kyoto approach is to work, a compromise will have to be found between targets based on emissions per dollar of GDP and targets based on emissions per capita. … The targets approach is destined, I believe, quickly to reach an impasse. [2006-09]
The principal difficulty with Kyoto, as we have noted, is agreeing by how much each country should reduce its emissions.I doubt that we will find an agreement acceptable to both the United States and the developing countries within the Kyoto approach. There is no set of generally accepted principles for allocating rights to usage. … The reason that setting target levels is so difficult is that each country’s circumstances differ. The United States might claim that, because distances within the country are greater and GDP higher, it should be allowed to pollute more. France might claim that … There is not even a glimmer of an idea at the moment of how targets can be set that will be acceptable both to the United States and to the developing countries. [2006-09]
2. A Global Price Provides a Countervailing Force against Free Riding
3. The Benefit of a Focal Point
4. Why Caps Appear Unfair to Poor Countries
The developing countries ask, why should the developed countries be allowed to pollute more now simply because they polluted more in the past? [2006-07] / At the very least they argue, they should have the right to emit the same amount per capita as the United States. [2006-09]
5. International vs. National Cap-and-Trade
The first step is to create an enforcement mechanism to prevent a country like the United States, or any country which refuses to agree to or to implement emission reductions from inflicting harm on the rest of the world. …Fortunately, we have an international trade framework that can be used. … the WTO does not allow subsidies … American firms are being subsidized [ by not “paying the cost of pollution to the global environment”]. …
Other countries should prohibit the importation of American goods produced using energy intensive technologies, or, at the very least, impose a high tax on them, to offset the subsidy that those goods currently are receiving. Actually, the United States itself has recognized this principle. It prohibited the importation of Thai shrimp that had been caught in “turtle unfriendly” nets, nets that caused unnecessary deaths of large numbers of these endangered species. [2006-07]
The WTO sustained the U.S. position. It established the principle that maintaining the global environment is important enough that normal access to markets, which the WTO guarantees for its members, can be suspended when a country’s export industries endanger it. … There are several ways this could be done. Under the current WTO regime, the countries of Europe and elsewhere could impose countervailing duties to make up for the subsidies that American producers. using energy-intensive technologies, implicitly receive when they degrade the global environment without paying the costs. [2006-09]
3. Uniformity of the Global Price
4. Hitting a Target with a Price
The tax could, for instance, be set so that the level of (global) reductions is the same as that set by the Kyoto targets. [2006-07] / A commonly imposed tax on emissions may yield more or less reduction than anticipated, in which case we may want to lower or raise the tax rate. [2006-09]
5. The Cost of Pricing is Low
The economic cost to each country is small—in some cases, actually negative. The cost is simply the difference in the “deadweight loss” of the emission tax and the tax. [2006-07]
6. The Use of Carbon Revenues
7. How to count exiting carbon taxes
8. Who Should Initiate the Treaty?
Comparisons that Assume Successful Negotiations
1. Price Volatility
2. International Wealth Transfers