Science Media Centre – Friday 9th October 2015

Price Carbon – I will if you will



David J C MacKay FRS, Peter Cramton,
Axel Ockenfels, and Steven Stoft


   
David J C MacKay FRS,
Department of Engineering
University of Cambridge

Former Chief Scientific Advisor
Department of Energy and Climate Change
United Kingdom Government


Why is global climate change action scarcely happening?



Why is global climate change action scarcely happening?

Knowledge of climate science?  

Why is global climate change action scarcely happening?

Knowledge of climate science

Why is global climate change action scarcely happening?

Knowledge of climate science
Common goals?

Why is global climate change action scarcely happening?

Knowledge of climate science
Common goals

[UNclimatechange/Flickr]

Why is global climate change action scarcely happening?

Knowledge of climate science
Common goals

[UNclimatechange/Flickr]
Blueprints for action?

Why is global climate change action scarcely happening?

Knowledge of climate science
Common goals

[UNclimatechange/Flickr]
Blueprints for action

Why is global climate change action scarcely happening?

Knowledge of climate science
Common goals

[UNclimatechange/Flickr]
Blueprints for action
International cooperation?

Why is global climate change action scarcely happening?

Knowledge of climate science
Common goals

[UNclimatechange/Flickr]
Blueprints for action
International cooperation Use the science of cooperation
repair the design of negotiations.



You can't solve a commons problem by replacing it with another commons problem
"Individual commitments"



Paris




Do individual commitments & review lead to an 
“upward spiral of ambition over time”?

Individual commitments 
cannot promote cooperation

"The most powerful driving force is the self-interest of every country."
– Christina Figueres, Executive Secretary of the UNFCCC

  • 10 players, each holding $10
  • Each $ pledged to the pot will be doubled and distributed evenly to all players
  • Voluntary pledges are enforced

Individual commitments 
cannot promote cooperation

"The most powerful driving force [is] the self-interest of every country."
– Christina Figueres, Executive Secretary of the UNFCCC

  • 10 players, each holding $10
  • Each $ pledged to the pot will be doubled and distributed evenly to all players
  • Voluntary pledges are enforced
  • Result [assuming self-interested players]: Zero cooperation, all pledge $0

Christiana Figueres


Executive Secretary of the UNFCCC



The driving force behind the pledges is simply “the self-interest of every country” 
and their pledges are 
“not because they want to save the planet.”
CBS Interview, October 2015

The science of cooperation

Dynamics of individual commitments: “Upward spiral of ambition”?

No.

  • History: Japan, Russia, Canada, and New Zealand left the Kyoto agreement
  • Field studies: insufficient reciprocity leads to a 
“downward cascade” (Ostrom 2010)
  • Supported by theory and laboratory experiments

The key to cooperation is reciprocity



I will abate more if you will
I will abate less if you abate less
I will tax your exports if you do not price your carbon
I will give you technology if you price your carbon
... other possibilities






NB: Reciprocity is not strange or new - it is widespread!

“I will if you will” 
promotes cooperation



  • 10 players, each holding $10
  • Each $ put in the pot will be doubled and distributed evenly to all players
  • Pledge is a commitment to reciprocally match the lowest offer of all
  • Voluntary pledges are enforced

“I will if you will” 
promotes cooperation



  • 10 players, each holding $10
  • Each $ put in the pot will be doubled and distributed evenly to all players
  • Pledge is a commitment to reciprocally match the lowest offer of all
  • Voluntary pledges are enforced
  • Result: Full cooperation, all pledge $10


Designing effective negotiations

Reciprocity needs a common commitment

Global carbon-price commitment seems possible

The UK already has policies equivalent to high carbon prices


Source: IFS 2013
  • ∼£100/tCO2 [electricity, gas]
  • ∼£220/tCO2 [vehicle fuel duty]
  • £30/t in 2020 and £70/t by 2030. [carbon price floor]


NB: Some people don't like the UK's climate policies because "what's the point if others don't"; so the reciprocal carbon price commitment should appeal to them.

The UK already has a carbon floor price

In the budget of 23 March 2011 the Chancellor announced the floor would start in April 2013 at about £25/tonne and rise steadily to £30/t in 2020 and £70/t by 2030.

How to get developing countries to support a strong global carbon price?



A ‘Green Climate Fund’ can be used to incentivise support for a higher price –

eg, Climate-fund payments proportional to the agreed carbon price.

Summary

Negotiations can be designed to realign self-interests and promote cooperation.

Self-interest

Individual commitments and reviews will not solve the tragedy of the commons.

Reciprocity

A common commitment ("I will if you will") can.

Don't negotiate Caps

Emission quantity caps cannot support a strong agreement.

Negotiate Price

A global carbon-price commitment could yield a strong treaty.

Green Climate Fund

Coupled climate-fund transfers can encourage poor countries to support a high carbon price.

carbon-price.com

Summary


Negotiations can be designed to realign self-interests and promote cooperation.

Reciprocity

Individual commitments and reviews will not solve the tragedy of the commons.
A common commitment ("I will if you will") can.

Negotiate Price

A global carbon-price commitment could yield a strong treaty, especially if coupled to Green Fund transfers, incentivizing low-emitting countries to support a high carbon price.

30 November 2015




30 November 2015

30 November 2015

30 November 2015

30 November 2015

2 December 2015

Why climate change action is difficult

(at least, while low-carbon technologies are more expensive than fossil fuels)


8. The atmosphere is a commons


9. Solutions must be fair

Negotiate a common carbon price

giving a predictable price
and with compensation for poorer people


NOT caps.
NOT global cap and trade.
 

Why negotiating a price can yield a better outcome





See also carbon-price.com

The size of future climate change depends on cumulative emissions


DECC/Met Office, adapted from IPCC 5th Assessment Report (2013)

National Geographic 2007

Global quantity commitment is impossible



History confirms
Almost everyone agrees
Paris does not even try

Global price commitment seems possible



Acceptable by cap-and-trade and carbon tax proponents
Universally acceptable standard (Pcountry = Pglobal)
Reduces risks

Global carbon-price commitment

All that is required of a country is that its average carbon price — cost per unit of greenhouse gas emitted — be at least as high as the agreed global carbon price.

Unlike global cap-and-trade, carbon pricing allows countries to keep all carbon revenues, eliminating the risk of needing to buy expensive credits from a rival country.

Taxes need not rise if a nation performs a green tax-shift – reducing taxes on good things such as employment by charging for bad things such as pollution. Shifting taxes from good things to bad things could mean there is no net social cost to pricing carbon, even before counting climate benefits.

This book is free online


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