April 30th, 2007 <-- by Paul Higgins -->

One of the most paralyzing obstacles to adopting climate policies is the genuine need for (and difficulty getting) international cooperation on efforts to reduce emissions. As I discussed in my previous post, perceptions can differ over how strongly and when different countries need to act. Nevertheless, eventually all nations will have to constrain and reduce their emissions if we’re going to stop the build up of greenhouse gases in the atmosphere. Nations that refuse to do their fair share will make climate policies less effective and harder to implement for everyone else.

Today I’ll briefly mention two strategies for encouraging international cooperation on emissions reductions: 1) national approaches that automatically respond to international efforts, and 2) trade penalties for countries that subsidize their industries’ greenhouse gas emissions.

Automatic Responsiveness

To get the most reduction in emissions for the least effort, countries can either set a cap on emissions or charge a fee to pollute. To ease the transition to a lower emission economy, countries can begin slowly then decrease the cap (or increase the fee) over time. Nations can also account for international cooperation by automatically adjusting the stringency of their cap or fee (or the rate at which they become more stringent) based on what other countries do. With good cooperation the cap or fee would become more stringent, but with poor cooperation a nation’s efforts would automatically ease.

As a relatively straightforward example, assume that a nation establishes a cap at its year 2005 emissions level. Provided countries responsible for at least 55% of worldwide emissions make comparable efforts, the cap would be maintained. If global coverage drops below 55%, however, the cap could increase by 5%. If global coverage drops below 40%, then the cap would automatically increase by 10%. Likewise, under strong cooperation the cap could decrease by 5-10% depending on how widespread the effort.

This type of approach has four advantages for nations eager to move forward with emissions reductions: 1) those nations can take unilateral action and thereby avoid contentious and prolonged international negotiations, 2) they can protect their economic competitiveness by accounting for the actions of other countries (the adjustments protect them from acting too strongly), 3) they create carrot and stick incentives to encourage other countries to join emission reduction efforts, and 4) they help overcome persistent rhetorical obstacles to climate policy.

These persistent rhetorical obstacles, in particular, pose serious problems for the adoption of policy measures. Opponents of climate policy in the United States, for example, often exaggerate economic risks by saying that we will suffer a major loss in competitiveness if China and India don’t match our efforts. Basic economic reasoning suggests the opposite: a modest first step will boost the economy by reducing harmful pollution subsidies. Nevertheless, building adjustments into policy would undercut this tired canard by automatically accounting for the actions of other countries.

Trade Penalties for Pollution Subsidies

Those who don’t pay for the damages their emissions cause, receive a subsidy to pollute (as discuss in the comments of this post). Our free trade agreements have tools for dealing with countries that subsidize their industries: countervailing measures.

The imports from countries that don’t institute pollution fees would face border tax adjustments equivalent to the total amount of pollution released during manufacture and shipment of a product multiplied by the appropriate pollution fee (this could equal the permit price in a cap and trade system). At the same time, the exports to non-cooperative countries would receive border tax subsidies that undo the pollution fee imposed within the country of origin. With these border tax adjustments, countries that don’t cooperate on emissions gain little, while countries that do cooperate risk little.

Neither approach is a perfect silver bullet, however. There may be obstacles with our current trade agreements that must be worked through, and policy measures that include responsiveness to international cooperation give up some regulatory certainty, which can help businesses with longer term planning. Nevertheless, preventing unchecked subsidies is entirely consistent with free trade and the modest loss of long-term regulatory certainty brings both a measure of economic protection and incentives for more international cooperation. As a result, the two approaches could help reduce the political, economical, and rhetorical obstacles to climate policy while simultaneously encouraging more emission reductions throughout the world.


  1. anon Says:

    Off topic: How about finally getting around to updating the “other voices section”. Pielke Sr., scitizen, env-econ, and even, (shock) climateaudit?. I know, I know….wouldn’t want too much openness to this debate 🙂

  2. Seth Baum Says:

    I recently discovered this blog via this comment on a MyDD diary about HR 2069, the new US carbon tax legislation. Can someone post a “post post”, that is, a diary summarizing the writing already on this blog? That’d help me (and others) get up to speed here, as I’m interested in contributing. An example of such a “post post” is this page on the old Felicifia site. (The new Felicifia site is my main online hangout.)

  3. phiggins Says:

    I received a good question privately. My response comes after.

    Dear Paul,

    Can you say a bit more about the carrot and stick incentives created by the automatic responsiveness approaches?

    “3) they create carrot and stick incentives to encourage other countries to join emission reduction efforts”


    [Response: Let’s say the United States used these automatic adjustments. The positive encouragement (the carrot) that the US would offer is to reduce emissions even more if other countries join in. Not only would cooperative countries be reducing their own emissions but those reductions would cause US emissions to go down as well. That means that cooperative countries get more climate protection for their efforts than they would if acting alone. The adjustments also discourage other nations from avoiding climate policies (the stick). If other countries don’t reduce emissions, then the US would ease its efforts and emit more. That means that a country that chooses not to reduce its emissions will face climate damage from their own emissions and from the higher US emissions.

    The approach will probably only work for fairly small range of adjustments. Otherwise, a nation that used them would cede too much control of its emissions to the choices made by other countries. That’s why I only chose 5-10% up or down in my example.

    Perhaps a better example would have been to focus on the rate that climate policy becomes more stringent. The rate that a cap declines (or fee increases) over time could depend on international cooperation. Other nations would be encouraged to reduce emissions (the carrot) because the US cap would go down faster with more cooperation (more climate protection). Likewise, other nations would be discouraged from avoiding climate policy (the stick) because the US cap would go down more slowly with less cooperation (less climate protection).

    Many thanks for the question. –phiggins]

  4. Paul Baer Says:

    The “automatic responsiveness” model is interesting but I’m skeptical about its value in addressing the incentives to free ride. It seems to me it wouldn’t be hard to build a quantitative model which could show the necessary assumptions about marginal costs and benefits under which such “multiplier effects” could affect a country’s basic cost-benefit calculation.

    On the other hand, I don’t think countries actually act as GDP maximizers, so my critique is a bit more complicated than it sounds. What I’m really suggesting is that this proposal has the appearance of changing countries’ cost-benefit calculations, whereas it’s likely to be more important from the perspective of the “rhetorical” benefits.

    on the trade adjustments question — it’s interesting to me that now that federal cap-and-trade legislation is getting serious attention, such trade adjustments are on the table; plainly it would have made sense for the US, given its plain violation of the UNFCCC, to be the subject of such border taxes. But the EU has been completely unwilling to discuss that seriously (on the assumption that it would only make it harder to get the US back, among other reasons). But the idea that we might now propose such sanctions against (say) China in the near term (as has been proposed by certain US environmental groups) as a means to get congressional legislation passed betrays a certain insensitivity to the dynamics of the international negotiations.

    –Paul Baer
    Research Director, EcoEquity

  5. Susan K Says:

    Tired canard is right! Another way of dealing with the Republicans incessant whining about “China and India can pollute, why can’t I”: is tax all polluted products, ie every item produced in countries that spew more than X amount of CO2 per $ of GDP or per capita.

    Not a gas tax, God forbid we might be able to do what works in Europe to get them 50 mpg cars, no, simply tax the filthy.

  6. rikkitikkitawwi Says:

    All maths on here is flawed. It’s underpinned by can’t stand to see India and China get big and can’t compete on an even footing so lets now control the say n environment. Sorry bys you havev real scientists to deal with on that one! Just learn for once to COMPETE. Try it you don’t have to feel inferior.

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