Suggestions for the Road to Copenhagen

We provide a unified discussion of the issues that confront negotiators of the next international climate agreement. We offer a novel proposal that entitles countries to discharge their treaty obligations by paying a “fine”. This escape clause provides cost insurance, simplifies the problem of enforcing compliance, and increases incentives to participate in the agreement. We explain why developed country obligations should rely on a cap and trade commitment rather than carbon taxes. A Central Bank maintains stability of carbon prices by defending a price ceiling and floor. An so-called intensity target is not a good alternative to an emissions cap. Modest trade restrictions, consistent with WTO law, will form an important part of the next agreement. Developed and developing countries have differentiated responsibilities. Developing countries do not adopt binding targets at the next round of negotiations, but they accept the principle of binding targets in the subsequent agreement, beginning in the early 2020s. Developed country participation relies on a reformed CDM and sectoral agreements that are financed by the sale of emissions permits.