The Harvard Project on International Climate Agreements

Achieving Comparable Efforts through Carbon Price Agreements

The United Nations Framework Convention on Climate Change (UNFCCC)’s 2007 Bali Plan of Action calls for the next agreement to ensure the “comparability of efforts” across developed countries while “taking into account differences in their national circumstances.” Trends in national emissions and economic growth vary widely between countries, as do year-to- year fluctuations around those trends. This means that achieving similar reductions relative to historical base years can require very different levels of efforts in different countries. These differences have greatly hampered climate cooperation because it means that commitments that are similar in effort look inequitable. Further, divergent underlying trends make it difficult to know the effort that any particular commitment will require. The failure of the G- 8 to set a base year for its agreed 80 percent reduction of emissions by 2050 illustrates the contention in formulating even collective targets.

The presumption that binding commitments can take only the form of a percentage reduction relative to historical levels has dimmed the long term prospects for stabilizing the climate, not least because it alienates rapidly industrializing countries such as China and India. Parties could negotiate emissions levels rather than reductions relative to base years, but even then they are not assured of comparable efforts because many things that affect the burden of achieving the target can happen between the year of negotiation and the commitment period. The recent financial crisis and global economic downturn are clear reminders of the volatility in the underlying economic environment in which parties make these emissions commitments. Additional uncertainties include unanticipated economic growth, technology breakthroughs, prices for renewable energy and natural gas (a lower-emitting alternative to coal), and political instability. To properly protect the climate, the international regime should endure through any number of economic and political fluctuations.

A Price Collar for Major Economies
Here we offer a way forward. Parties could break the stalemate around hard targets and ensure the comparability of efforts by supplementing commitments on emissions with commitments for price signals on carbon. Under our proposal, all major parties would need to show at least a minimum level of effort regardless of whether they achieve their emissions target, and they would be allowed to exceed their target if they were unable to achieve it in spite of undertaking a high level of effort.