On Saturday (Dec. 8) another wildly unsuccessful round of climate negotiations, in Doha, Qatar, concluded with applying a band aid to solve the rapidly accelerating climate problem. The 1997 Kyoto accord was extended to 2020. If you think this is a good thing, you are severely mistaken. China, the US and the other usual suspects made no significant concessions. Further,  the climate leader — the EU — is internally in disagreement over what reductions should be agreed to.

Let’s take a brief look back. In 1992, the Rio Earth summit set out a framework to address the climate problem. The goal of the Kyoto protocol, signed in 1997, was to reduce emissions by 5% relative to 1990 levels. It is now 2012, which is the last year of the current Kyoto Protocol’s life and the conclusion of the 18th (!) conference of the parties. Global emissions from fossil fuel combustion have risen by ~54% relative to 1990. This is bad news, since carbon over the time periods most social scientists study is a stock pollutant.

While academics have proposed a number of interesting avenues for further studies of so called architectures for future agreements, time is slowly running out. It is simply too difficult to get 200+ countries to agree and then stick to a binding agreement.

So what to do?

I think a simple handshake between the U.S. and China would be a good start. Each agrees to a carbon tax which is collected fairly far upstream. Any country wanting to sell its goods into the U.S. or Chinese markets could either pay a carbon tariff at the border or start charging its own equivalent carbon tax and be exempt from the tariff.

Is this going to happen? Maybe not, but there are some significant advantages to this approach.

  • Carbon taxes raise revenue and are non-distortionary
  • If you don’t like the revenue, carbon taxes can be made revenue neutral
  • If one is concerned about poor people taking on a significant share of the burden, one can make the tax more progressive
  • You don’t have to argue with 199 other countries. Just 1 (or a few more)
  • Carbon taxes favor low carbon fuels, which generally have lower emissions of other local air pollutants.
  • But one thing is for sure: We are becoming richer as a species and we will want to consume more energy services. Unless we start pricing carbon, that energy will largely come from coal. And if that happens, limiting warming to 2 degrees is a pipe dream. In fact, it may already be too late.

    Cross-posted from Energy Economics Exchange (tag line: Research that Informs Business and Social Policy), a blog of the Energy Institute at Haas.