Time for a new climate change strategy?

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Joseph E. Stiglitz, 2001 Nobel Laureate and Professor in Economics at Columbia University, concludes that world leaders at the Copenhagen climate conference failed not only to reach a binding agreement, but also to agree on how to save the planet. An entirely new strategy is needed, he says, to effectively address climate change:

“Perhaps it is time to try another approach: a commitment by each country to raise the price of emissions (whether through a carbon tax or emissions caps) to an agreed level, say, $80 per ton. Countries could use the revenues as an alternative to other taxes – it makes much more sense to tax bad things than good things. Developed countries could use some of the revenues generated to fulfill their obligations to help the developing countries in terms of adaptation and to compensate them for maintaining forests, which provide a global public good through carbon sequestration.

We have seen that goodwill alone can get us only so far. We must now conjoin self-interest with good intentions, especially because leaders in some countries (particularly the United States) seem afraid of competition from emerging markets even without any advantage they might receive from not having to pay for carbon emissions . A system of border taxes – imposed on imports from countries where firms do not have to pay appropriately for carbon emissions – would level the playing field and provide economic and political incentives for countries to adopt a carbon tax or emission caps. That, in turn, would provide economic incentives for firms to reduce their emissions.”

This is an interesting idea, as it essentially shifts the focus away from getting each country to meet hard emissions reduction targets to setting the price of carbon, a simpler proposition from an economic point of view. Agreeing to hard caps can be politically contentious. Stiglitz’ approach might be more viable.