A Copenhagen Collar: Achieving Comparable Effort Through Carbon Price Agreements
|Author:||Warwick J. McKibbin, Adele Morris and Peter J. Wilcoxen
The UNFCCC’s 2007 Bali Plan of Action calls for the Copenhagen agreement to ensure the “comparability of efforts” across developed countries while “taking into account differences in their national circumstances.” Implementing these goals will require a new approach to the negotiations that goes well beyond the Kyoto paradigm. Kyoto focused on establishing national emissions targets measured as percentage reductions relative to a specified base year. However, differences in economic conditions can easily mean that countries with similar targets will experience very different costs, violating the goal of comparable effort. Indeed, variations in economic growth among developed countries between the Kyoto base year (1990) and the date at which it was to go into effect (2008) have led to large differences in emissions growth and, consequently, in the costs of meeting the Kyoto targets. To ensure comparability of effort, the new agreement will need to address costs directly. A transparent and robust method for doing so would be to include upper and lower bounds on the price of carbon dioxide emissions, a policy often described as a “price collar”.
Expanding the agreement to include a price collar would have additional benefits as well. It would provide a path for rapidly industrializing countries such as China and India to take on gradually increasing commitments without fearing that their growth will be stifled. It would also help stabilize the agreement in the face of major economic disturbances such as the recent financial crisis and global economic downturn. The agreement will need to endure through many economic and political crises, and a price collar would help it do so.
In this paper, we provide an example price collar for the United States and analyze its effects on the US economy over the next few decades.
Peter J Wilcoxen