Friday, October 16, 2015

Climate negotiation design

Axel Ockenfels writes:

David MacKay, Peter Cramton, Steven Stoft and I published a comment on climate negotiation design today in Nature (my stay in Stanford way extremely useful in this respect ;-). 

And here is a link to an ebook that we compiled, which has lots of background material by us and others, including Tirole, Stiglitz, Weitzman, and Nordhaus:

There have been a couple of newspaper articles on that (and more are coming), too, such as:
["If you know a carbon price will apply to all other countries as well as you, it now comes in your self interest to advocate a high carbon price" David MacKay, University of Cambridge]

The Nature comment comes with a picture to illustrate the problem of all pulling together...

Price carbon — I will if you will  David J. C. MacKay, Peter Cramton, Axel Ockenfels& Steven Stoft ,12 October 2015

"Negotiations at the United Nations climate summit in Paris this December will adopt a 'pledge and review' approach to cutting global carbon emissions. Countries will promise to reduce their emissions by amounts that will be revised later. The narrative is that this will “enable an upward spiral of ambition over time”1. History and the science of cooperation predict that quite the opposite will happen.
"Success requires a common commitment, not a patchwork of individual ones. Negotiations need to be designed to realign self-interests and promote cooperation. A common commitment can assure participants that others will match their efforts and not free-ride. A strategy of “I will if you will” stabilizes higher levels of cooperation. It is the most robust pattern of cooperation seen in laboratory and field studies of situations open to free-riding"
"We, and others, propose an alternative: a global carbon-price commitment7. Each country would commit to place charges on carbon emissions from fossil-fuel use (by taxes or cap-and-trade schemes, for example) sufficient to match an agreed global price, which could be set by voting — by a super-majority rule that would produce a coalition of the willing.

"A uniform carbon price is widely accepted as the most cost-effective way to curb emissions. Carbon pricing is flexible, allowing fossil taxes, cap-and-trade, hybrid schemes and other national policies to be used (unlike a global carbon tax). All that is required of a country is that its average carbon price — cost per unit of greenhouse gas emitted — be at least as high as the agreed global carbon price.

"Unlike global cap-and-trade, carbon pricing allows countries to keep all carbon revenues, eliminating the risk of needing to buy expensive credits from a rival country. Taxes need not rise if a nation performs a green tax shift — reducing taxes on good things such as employment by charging for pollution. Shifting taxes from good things to bad things could mean there is no net social cost to pricing carbon, even before counting climate benefits"

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