Harvard Project: Economic Incentives in a New Climate Agreement

The magnitude of the climate change challenge has drawn attention to the
potential use of market-based instruments to ensure that polluters face direct
incentives to mitigate emissions at the lowest possible cost. This new research
paper from the Harvard Project of International Climate Agreements at the
Harvard Kennedy School examines such instruments. It was prepared as background
to a high-level dialogue hosted by the Prime Minister of Denmark, in his
capacity as incoming President of the fifteenth Conference of the Parties.

Three basic routes stand out. First, countries could agree to apply the same tax
on carbon (harmonized domestic taxes) or adopt a uniform international tax.
Second, the international policy community could establish a system of
international tradable permits, — effectively a nation-state level cap-and-trade
program. In its simplest form, this represents the Kyoto Protocol’s Annex B
emission targets and the Article 17 trading mechanism. Third, a more
decentralized system of internationally-linked domestic cap-and-trade programs
could also ensure internationally cost-effective emission mitigation.

See the full paper here: http://belfercenter.ksg.harvard.edu/publication/18261/

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