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A Global Incentive to Reduce Emissions

Proposals for coordinated climate action at the global level all too easily run into free-rider and fairness problems, leaving many of the most popular policy proposals dead on arrival. But a simple framework that gives all countries similar incentives would overcome these problems.

CHICAGO – With President Joe Biden’s administration recommitting the United States to the Paris climate agreement, and with a major United Nations climate-change conference (COP26) coming later this year, there is new hope for meaningful global policies to meet the challenge. But while mounting evidence of increasing climate volatility – unprecedented wildfires in Australia, droughts in California and Sub-Saharan Africa, intensifying hurricane and cyclone seasons – suggests that we must move fast in curbing planet-warming greenhouse-gas (GHG) emissions, there are serious impediments to concluding any new global accord.

Economists generally agree that the way to reduce GHG emissions is to tax them. But such taxes almost certainly will cause disruptive economic changes in the short run, which is why discussions of imposing them tend to run quickly into free-rider or fairness problems.

For example, industrialized countries such as the US are concerned that while they work hard to reduce emissions, developing countries will keep pumping them out with abandon. But at the same time, developing countries like Uganda point out that there is profound inequity in asking a country that emitted just 0.13 tons of carbon dioxide per capita in 2017 to bear the same burden as the US or Saudi Arabia, with their respective per capita emissions of 16 and 17.5 tons.

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