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An International Carbon-Price Commitment Promotes Cooperation

Open Access Article

Abstract:
To promote cooperation in international climate negotiations, negotiators should focus on a common commitment. Such commitments have the advantage of facilitating reciprocal "I will if you will" agreements in a group. Reciprocity is the basis for cooperation in repeated public goods games, and a uniform price would provide a natural focal point for a common international commitment. Such a price is also essential for efficient abatement. Countries would retain flexibility in how to implement the price - with cap-and-trade, a carbon tax, or a hybrid approach. Country risk is reduced relative to risk under international cap-and-trade since carbon revenues stay within the country. Price commitments also tend to equalize effort intensity and can facilitate enforcement. To encourage participation by less-developed countries, a green fund is needed to transfer money from richer to poorer countries. Transfers are smaller and more predictable with a uniform price commitment than with international cap and trade.
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Keywords: Climate change, global warming, carbon pricing, international public goods, UN climate negotiations, prices versus quantities

DOI: 10.5547/2160-5890.4.2.aock


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Published in Volume 4, Number 2 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.