Overcoming the Copenhagen Failure with Flexible Commitments

Abstract

The fundamental issues presented by climate change are first, that the global environment is a global public good and second, the question of how to share the burden of providing a better climate. Everyone would like to "free ride" on the efforts of others, but there is disagreement over who is free riding. The Kyoto approach, based on dividing up emission rights, has an inherent problem in that such rights could easily reach a monetary value of over a trillion dollars a year. The approach suggested here avoids any attempt at a grand solution to the fair allocation of these rights. A low-carbon economy could be achieved through the imposition of a moderate carbon price, which would raise substantial revenue and allow a reduction in other taxes, thereby keeping the deadweight loss small. Countries should be given flexibility in how they meet their obligations - whether through a carbon tax, a system of cap and trade, or even possibly certain regulatory mechanisms. But a fully voluntary agreement likely cannot include countries that export a significant amount of fossil fuel. A green fund financed by allocating say 20% of carbon revenues collected in developed countries could be used to implement "differentiated responsibilities."