Global warming is a truly global problem and solving it requires a truly global agreement. The Paris agreement has no teeth at all—it’s just a make-believe agreement. Trump proved that.
The reason that after 30 years we have no substantive agreement is that the world accepted the environmentalist claim that a real deal had to specify abatement quantities and no price. The Kyoto negotiators understood they needed a real agreement but they only considered quantity agreements. They invented about a dozen during a year of hard work. But none were fair and all were rejected.
So at the last minute, everyone just stepped up to the podium and wrote down any commitment they wanted. And then even that fell apart. A common quantity agreement is impossible—countries are too different. common price agreement
A common-price agreement is enormously more practical and has never been tried. That is why the global-carbon-price concept is so important.
But is carbon pricing fair?
Not according to conservatives and environmentalists. Both prefer quantity limits. But here’s the thing. Those cannot benefit the poor and may hurt them. But a high price can do the same thing with the advantage that it collects a lot of money which can be refunded on an equal-per-person basis. If that is done, the poor will end up much better off than with quantity limits, and they may end up better off than without any limits or carbon pricing.
Pricing is the fairest approach if the revenues are refunded equally per person.
Can a global price solve the climate conundrum?
If the US had its own climate “personal” we would have no problem agreeing to fix it. The trouble is that we don’t have our own climate and anything we do to fix it mainly fixes everyone else’s climate and helps us only a little. So we want others to pitch in and not free ride on our efforts.
Conversely, everyone would like to free ride on the efforts of others. A truly global problem in a world without a government creates bad incentives for every country. That’s a classic free-rider problem or you could call it a “tragedy of the commons” or a prisoners’ dilemma game with dozens of prisoners.
According to Martin Weitzman, a global price embodies “a ‘countervailing force’ against narrow self-interest by automatically incentivizing all negotiating parties to internalize the externality.”
That an economist’s way of saying that a single global price solves this problem of bad incentives. Here’s how:
Once we agree to a single global carbon price then anyone who votes for a low price is voting for all others to do less to help them with their climate problem.