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 lou’-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.”
Patrick Rey
Principal-agent models take outside options, determining participation and incentive constraints, as given.
- 07/24/2024
- Working Paper