Views of Richard N. Cooper on Carbon Pricing
The following quotations is significantly incomplete.
Richard N. Cooper is Maurits C. Boas Professor of International Economics at Harvard University. [ Negotiations, Treaty Mechanics, Comparisons, References ]
Summary of Carbon Pricing Views
References and Full-Text Links
2008-10 Cooper, Richard N. “The Case for Charges on Greenhouse Gas Emissions” (33 pp.) The Harvard Project on International Climate Agreements
2006-01 Cooper, Richard N. “Alternatives to Kyoto: the Case for a Carbon Tax-01“ (11 pp.) Weatherhead Center for International Affairs, Harvard.
2004-09 Cooper, Richard N. “A Global Carbon Tax?” (6 pp.) Council on Foreign Relations, Commissioned Briefing Notes for the CIGI/CFGS L20 Project.
2004-08 Cooper, Richard N. “A Carbon Tax in China?“ (11 pp.) Department of Economics, Harvard University,” Working Paper.
2000-01 Cooper, Richard N. “International Approaches to Global Climate Change.” (27 pp.) World Bank Research Observer, Vol 15; Part 2, pages 145-172,
1998-02 Cooper, Richard N. “Toward a Real Global Warming Treaty.” (8 pp.) Foreign Affairs Magazine, March/April, 1998.
Fundamentals of Global Carbon Pricing:
1. The International Climate Problem Is a Free-Rider Problem
The wide distribution of expected but distant benefits in response to collective action provides an incentive for every country to encourage all to act but then to shirk itself — the so-called free-rider problem. [1998-02]
2. A Global Carbon Price Is Needed
A successful attack on global warming will only happen through mutually agreed-upon actions, such as a nationally collected tax on greenhouse gas emissions, rather than through national emission targets. ||| For problems such as reducing emissions, the favorite instrument of economists is to tax the offending activity. All countries could agree to impose a common carbon emissions tax, which would increase the price of fossil fuels in proportion to their carbon content. [1998-02]
3. Cap-and-Trade Can Comply
But several economies, most notably the European Union, have embarked on a cap-and-trade system. The current Australian government also seems committed to such a system, and several bills before the US Congress call for introducing a CAT system into the United States. It is worth asking, therefore, whether the two systems can co-exist. The answer is affirmative, provided several conditions are met.
A CAT country could, if it wished, introduce procedures whereby additional emission permits could be issued if the trading price of permits exceeded the agreed carbon charge by a significant amount for a significant period of time. … Other countries would only be concerned about the opposite case, in which the price of permits fell significantly short of the internationally agreed carbon charge.
First, the trading prices under the CAT system over time should average no less than the internationally agreed carbon charge. For example, the average over ten years should be no less than the agreed carbon charge. This would give the CAT countries an opportunity to tighten their target limits appropriately. Second, it might be agreed that if the permit trading price fell below the agreed charge by x percent for more than y months, trading partners could appropriately consider this an export subsidy and levy countervailing duties on their imports from the CAT countries. An x of ten percent and a y of six months might be reasonable values, but these variables could be subject to negotiation.
Finally, CAT countries could not give away emission permits to producers of goods and services, or at least producers of tradable goods and services. These could properly be considered production subsidies relative to a regime of common carbon charges. A CAT country would therefore have to auction the emission permits or, if it wanted to give the permits away, it could give them directly to households, on a per capita or some other basis, which would in turn sell them into the permit trading market. The objective would be to avoid either the appearance or the reality of competitive advantage being conferred by the operation of the permit system. [2008-10]
4. Green Fund Transfers Are Essential
The Rio convention conditions cooperation by developing countries in reducing emissions on new financial support from the rich countries. These activities could be financed in part by revenues from an internationally agreed tax levied by all countries. Obviously, the major emitters, currently the rich countries, would pay most of the tax. [1998-02]
Why a Global Price Is Easier to Negotiate
1. A Price Simplifies Negotiations
The idea of imposing a charge on carbon emissions is in complete harmony with China’s official energy strategy, adopted in 2002. ||| Saudi Arabia, the world’s leading oil producer, has indicated that it would not have a problem with a universal charge on carbon dioxide emissions, implying it would not restrict oil production to capture the revenues of a charge on carbon. Given aversion to taxes by many Americans, revenues from the carbon charge could be used there to reduce other taxes, to enhance investment and/or to neutralize the distributional effects of the carbon charge. The likelihood, on the basis of current knowledge, that the major negative impacts of climate change would occur in low latitudes (even though surface temperature is expected to rise more at high latitudes) should provide many developing countries with incentive to participate in an internationally agreed scheme, provided the major emitting areas also participate, and provided that it was not seen to threaten their development. [2008-10]
2. A Global Price Provides a Countervailing Force against Free Riding
3. The Benefit of a Focal Point
Whatever one thinks of Kyoto in terms of environmentalist politics, the troubling fact remains that its underlying approach is bound to fail. Because it is premised on setting national emissions targets. [1998-02]
An effective treaty cannot be based on the allocation of valuable emission rights since there will be no generally agreed principle for allocation. [1998-02]
4. Why Caps Appear Unfair to Poor Countries
Stabilizing the amount of greenhouse gases in the atmosphere will eventually require … the engagement of the developing countries, but the framework of the proposed treaty is unacceptable to them. There is unlikely to be any generally acceptable principle for allocating valuable emission rights between rich and poor countries, making the success of the Kyoto approach a probable impossibility. ||| Targets allocated on this basis will be completely unacceptable, however, to countries that are or expect to be industrializing rapidly. Such nations’ demand for fossil fuels grows with disproportionate speed. They will argue that most of the existing greenhouse gases generated by humans were emitted by today’s rich countries and that those countries should therefore bear more responsibility for cutting back. [1998-02]
5. International vs. National Cap-and-Trade
Treaty Mechanics
1. Monitoring
All important countries except Cuba and North Korea hold annual consultations with the International Monetary Fund on their macroeconomic policies, including the overall level and composition of their tax revenues. The IMF could provide reports to the monitoring agent of the treaty governing greenhouse gas emissions. Such reports could be supplemented by international inspection both of the major taxpayers, such as electric utilities, and the tax agencies of participating countries. ||| Of course, national policies would have to be monitored to ensure that the effect of the new tax was not undermined by other changes in tax or subsidy policy. [1998-02]
2. Compliance/Enforcement
3. Uniformity of the Global Price
4. Hitting a Target with a Price
5. The Cost of Pricing is Low
6. The Use of Carbon Revenues
The tax would generate revenue for governments whose usual sources of revenue hamper economic incentives to work, save, or undertake commercial risks. Growth can be encouraged by reducing other taxes, like those on foreign trade or on earnings. ||| One possible disposition of revenues from emission taxes would be to reduce other taxes, such as the income tax or the payroll tax. Each country would be free to dispose of the emission tax revenues as it judged best. [1998-02]
7. How to count exiting carbon taxes
8. Who Should Initiate the Treaty?
It is not necessary that all countries agree initially to the scheme. It could be launched with the major emitters, perhaps three dozen countries in all. But it must include both China and the United States, the two largest emitters of carbon dioxide. [2008-10]
Comparisons that Assume Successful Negotiations
1. Price Volatility
2. International Wealth Transfers
3. Corruption