A Global Incentive Scheme That Could Reduce Carbon Emissions

Context: A system of financial transfers from heavy emitters to low-emission countries could push every nation to fight climate change.

Limited prospects of alternative proposals

• Domestic carbon tax alongside a border-adjustment tax: Would not improve fairness and would let large importing countries impose their tax preferences on poor exporting countries, serving as a Trojan horse for protectionism.
• Taxing GHG emissions: Cause disruptive economic changes in the short run and tend to run quickly into free-rider or fairness problems.

Global carbon incentive (GCI) model: As an alternative climate funding mechanism -

• Every country that emits more than the worldwide average of around five tons per capita would pay annually to a global incentive fund.
• Total payment amount calculated by multiplying excess emissions per capita by population and the GCI.
• If the GCI started at $10 per tonne, the US would pay around $36 billion, and Saudi Arabia would pay $4.6 billion.

Benefits of GCI model

• Overcomes free-rider problem: That is, poorer countries (like Uganda, which has considerably low per capita emissions) and the US would have the same incentives to economize on emissions.
• Addresses fairness problem: Low emitters, which are often the poorest countries and the ones most vulnerable to climatic changes they did not cause, would receive a payment that could help their people adapt.
• Significant scope for expansion: If GCI is raised over time, the collective sums paid out will approach $100 billion per year that rich countries promised to poor countries at COP15 in 2009.
• Assign responsibility for payments in a feasible way: As the big emitters are in the best position to pay.
• Scope for domestic experimentation: Each country can chart its own course, while GCI supplements whatever moral incentives are already driving action at the country level.
  • One country might impose prohibitive regulations on coal, another might tax energy inputs, and a third might incentivize renewables.
• Simplicity and self-financing structure.

Implementation challenges of GCI model

• Complexities in per capita emissions calculations: Adjustments will be needed to take into account emissions embedded in imported goods.
• $10 GCI is considered too low.

Conclusion: GCI is by far the best option available, and it would give everyone a greater incentive to save the planet.