New paper: Quantification of an efficiency–sovereignty trade-off in climate policy

The Paris Agreement calls for a cooperative response with the aim of limiting global warming to well below two degrees Celsius above pre-industrial levels while reaffirming the principles of equity and common, but differentiated responsibilities and capabilities1. Although the goal is clear, the approach required to achieve it is not. Cap-and-trade policies using uniform carbon prices could produce cost-effective reductions of global carbon emissions, but tend to impose relatively high mitigation costs on developing and emerging economies. Huge international financial transfers are required to complement cap-and-trade to achieve equal sharing of effort, defined as an equal distribution of mitigation costs as a share of income, and therefore the cap-and-trade policy is often perceived as infringing on national sovereignty. Here we show that a strategy of international financial transfers guided by moderate deviations from uniform carbon pricing could achieve the goal without straining either the economies or sovereignty of nations. We also identify risks and adverse consequences of carbon price differentiation due to market distortions that can undermine environmental sustainability targets. Quantifying the advantages and risks of carbon price differentiation provides insight into climate and sector-specific policy mixes.

Bauer, N., Bertram, C., Schultes, A. et al. Quantification of an efficiency–sovereignty trade-off in climate policy. Nature 588, 261–266 (2020).

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