To curb global carbon emissions and slow climate change, a group of economists recommend using a variable carbon price and mandating moderate financial transfers from mature to developing economies.
Small tweaks to existing policy frameworks would ensure the burden of climate change mitigation is shared more efficiently and equitably, researchers argue in a new paper published Wednesday in the journal Nature.
Efforts to build on the Paris Agreement and spur more aggressive emissions reduction pledges have been plagued by disagreements between nations with more advanced economies and those with quickly growing but less mature economies.
"The tricky question is: how to achieve a climate target while respecting equitable burden sharing?" lead study author Nico Bauer said in a news release.
"This translates into a trade-off between economic efficiency and sovereignty, as an either-or solution turns out to be quite expensive: either huge international transfers or higher costs for all," said Bauer, who researches climate change mitigation at the Potsdam Institute for Climate Impact Research in Germany.
"Now, our calculations show that surprisingly moderate deviations from uniform carbon pricing can strongly reduce the money transfers needed," said Bauer. "And moderate financial transfers can strongly reduce inefficiencies of differentiated carbon pricing. Both policy instruments turn out to have non-linear effects: small changes can make a big difference."
Bauer and his research partner acknowledge that the cheapest way to quickly curb carbon emissions would be to institute uniform CO2 pricing and international trading of emissions allowances.
However, such a paradigm would put a prohibitive burden on developing economies — costs that would require even greater assistance from mature economies.
Conversely, advanced economies would need to enact more stringent emissions reduction rules, increasing the overall costs of climate change mitigation.
"A uniform carbon price delivering global emission reductions at the lowest cost, therefore, hits less developed countries harder," Bauer said. "To establish equity, advanced countries would have to compensate developing countries financially to neutralize the differences in income losses."
"If advanced countries for the sake of sovereignty refuse this kind of financial transfers, to maintain equity their national CO2 prices would need to be very high to achieve stronger emission reductions themselves," Bauer said.
For the study, researchers used computer models to analyze the effectiveness of alternative pricing frameworks.
The data showed the opposite of a uniform pricing model would be equally problematic, with carbon prices in developed economies indexed at more than 100 times the carbon price in developing economies.
According to the new analysis, the best way to ensure the economic costs of climate mitigation are shared equitably by both advanced and developing economies is to deploy a combination of moderate variations in carbon prices and moderate financial transfers.
"Any ambitious international greenhouse gas reduction policy has to meet three criteria to become acceptable to governments worldwide: it must secure fair effort-sharing, cost-efficiency, and national sovereignty — which means limiting financial transfers," said study co-author Ottmar Edenhofer.
"Our approach explores the wiggle room to find an acceptable compromise for this 'trilemma,' especially if it is complemented with specific energy policies and international technology transfers," said Edenhofer, director of the Potsdam Institute for Climate Impact Research.
