This chapter briefly presents the case for five concrete changes that would make a post-Kyoto climate treaty more effective, efficient, and equitable.
1. Let Science Set the Cap
For a number of reasons, we should insist that scientists who study the climate, not economists, are the experts best suited to advise us about how much reduction in global net emissions is necessary. (1) Climate scientists are more likely to be right about the dangers of climate change than economists. (2) The scientific community is miraculously speaking with a single voice once we discount a handful of scientists who are clearly in the employ of fossil fuel industries. (3) Most importantly, the scientific community uses the logic of insurance, which is better suited to treating climate, where uncertainties are great and the downside risk is literally unthinkable, than the alternative logic of cost-benefit analysis favored by mainstream environmental economists….
2. Caps for All
As explained in Chapter 8, trading certified emission reduction (CERs) credits that are completely bogus between Annex-1 governments or private parties within Annex-1 countries cannot undermine global reductions as long as national, annual emissions are monitored accurately and governments are held to their treaty commitments. Trading of bogus carbon credits can puncture holes in the global emissions cap only when projects in non-Annex-1 countries where national emissions are not capped sell bogus CERs to governments or sources in Annex-1 countries with caps. The obvious solution to this problem is to cap emissions in all countries—that is, eliminate the distinction between Annex-1 and non-Annex-1 countries altogether. Our motto should be “No cap, no trade”…. But climate justice activists, as well as governments in poor countries, argue that capping emissions in poor countries effectively prevents them from developing and catching up with the developed economies. These arguments that capping emissions in every country would be unfair are correct if the caps are wrong. However, none of these arguments against capping emissions everywhere holds true if caps are set equitably….
3. Equitable Caps: The Greenhouse Development Rights Framework
One excellent proposal for determining equitable caps for developed and developing countries alike is the Greenhouse Development Rights Framework which proposes a very practical formula to assign differential caps to all countries on a continuum that considers only a country’s residents who have enjoyed economic development, combining those residents’ “responsibility”—their per capita emissions since 1990—and those residents’ “capacity”—their per capita gross domestic product (GDP). By treating countries differently on a continuous basis, instead of a dichotomous basis as the Kyoto Protocol does by designating countries as either Annex-1 or non-Annex-1, a post-Kyoto international treaty would become much fairer. Not all MDCs are equally responsible and capable. More importantly, not all LDCs are equally responsible and capable. China should not be treated the same way as the United States, nor should the Republic of the Congo be treated the same way as China, as it is under Kyoto. The Greenhouse Development Rights formula would give the United States tighter (lower) caps than China and would give China tighter (lower) caps than the Republic of the Congo….
4. Cap Net Emissions
Since it is net emissions, not emissions, that matter to climate change, we should cap national net emissions – emissions minus sequestration. Then governments would have an incentive to discourage activities that increase net emissions and encourage activities that decrease net emissions. The international treaty need not dictate to governments how they go about doing this. Capping national net emissions provides the proper incentive for governments to find ways to discourage deforestation, eliminates the perverse incentive to destroy and replant that currently exists under Kyoto in countries without caps who can sell sequestration offsets, and does not burden the CDM with the headache of judging additionality and leakage with regard to conservation projects. The only thing the treaty must measure is annual, national, net emissions, which is straightforward and relatively noncontroversial….
5. A New Sheriff for the Carbon Market
As long as emissions from non-Annex-1 countries are not capped, there is no choice but to give an international agency the authority to review applications for CERs from sources in those countries…. But fortunately there is a better sheriff available once net emissions are capped in all countries. Once such caps were established, planned global reductions would be secured even if bogus CERs were traded—including bogus CERs for sequestration offsets. Furthermore, the governments of all countries would have a powerful incentive to prevent private parties within their borders from selling bogus CERs in the international carbon market. It is in the interest of country governments whose national net emissions are capped to keep private parties operating within their territories from selling more CERs in the international carbon market than the amount by which a project actually reduces emissions or increases sequestration above and beyond what would have occurred had the project not been undertaken, because if country governments whose net emissions are capped failed to prevent bogus sales, either those governments or their citizens would suffer the adverse consequences of having to cover the shortfall by reducing net emissions or buying more CERs than they would have had to otherwise….
Why Not an International Carbon Tax?
The train wreck in Copenhagen raised the question whether it might not be better to scrap the Kyoto framework altogether and try to get countries to agree on an international carbon tax instead…. Progressive economists traditionally favor taxes over cap-and-trade programs for a number of good reasons. So why should progressives not abandon the Kyoto cap-and-trade framework as a failed experiment and push for an international carbon tax in its place? There are three compelling reasons why this would be a fatal mistake.
First, the international community has invested twelve years negotiating a cap-and-trade format, and given the urgency of the problem as compared to the speed of international diplomacy we should not want to start all over again….
Second, the scientific community has positioned us to win global caps that are, even if not a “solution,” a decent deal in present circumstances. Caps that stabilize GHG concentrations in the atmosphere at 350 parts per million and keep the average global temperature from rising by more than 2 degrees Celsius would be a tremendous step forward to prevent climate change before it is too late. This is quite a change from a few years ago and is largely due to the powerful testimony coming from climate scientists who are the relevant experts with regard to how low the global cap should be. On the other hand, economists become the experts to consult about how high a global carbon tax should be and they have not supported aggressive action, and nobody believes we have any chance of winning political support for an international carbon tax high enough to reduce emissions by nearly this much. In other words, strictly from an emission reduction perspective we are poised to get a much better deal from a cap and trade treaty, with scientists as experts, than we could ever hope to get with an international carbon tax, with economists as experts….
But neither of these is the most important reason that progressives should prefer a cap-and-trade treaty to an international carbon tax. The most compelling reason is that there is no practical way to make an international carbon tax nearly as fair as we can make a cap-and-trade policy…. If the international treaty organization collected this tax from every country, then in theory the treaty organization could redistribute the tax revenue in a way that was fair to poorer countries—for example, compensate China more for imposing as high a carbon tax as the United States, and compensate the Republic of the Congo even more. But it is highly improbable that countries would let the United Nations collect an international carbon tax. It is far more likely that any international carbon tax treaty would instead require participating governments to impose a uniform carbon tax and then collect the tax from its own citizens. Having done so, does anyone imagine that the U.S. Senate would agree to send tens, if not hundreds of billions of dollars per year collected from U.S. businesses and citizens to the government of China?
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