Scholars at Paris Dauphine University propose a global “bonus-malus” form of carbon pricing. Countries with above average per-capita CO2 emissions would pay those with below-average emissions. Their report calculates that, at $7.50/tonne, the US would pay $34B, and China, $16B. India would receive $39B. Although politically infeasible, this mechanism can play a useful roll when
coupled to a normal global carbon price.Cramton and Stoft have previously proposed using this scheme to reward poor countries who adopt a much higher carbon price. In other words, there would be two global prices. Call them P and GFP. Every country would set an internal carbon price of P and keep the revenues, but there would also be a Green-Fund price of GFP that would make equity transfers from high-emission to low-emission countries, just as described by the Dauphine University report.
Since the cost of setting P and keeping the revenues is only P×dQ/2, where dQ is the reduction in emissions, and since dQ is at first much less than Q, P can be set much higher than GFP, and a country like India will profit from the arrangement (not counting climate benefits).
Since GFP will have the same incentives as P, the total effective global price will be P+GFP. And since this is much larger than GFP, this scheme can either have far more impact with the same international transfers, or the same impacts with far smaller international transfers.