We need to get our Hands on a Climate Lever

A paper in the journal Nature last week calls for a global carbon price. This is a big step forward, but are we still missing a trick?

Imagine a sports club debating next year’s subscription charge: there are arguments both for and against raising it substantially. But at least everyone knows that the final result will apply across the board. This is a great help: trying to agree different individual amounts from each member would be a recipe for chaos.

In a similar vein, the paper in Nature, by David MacKay and colleagues, calls on us to forget national targets on emissions, and instead seek a global carbon price, which each nation can then implement in its own way.

We should agree first, they say, that there should be a common price for everyone (and this should be an ‘obvious’ or ‘focal point’ idea that everyone can accept). That transforms the game-theory incentives. Thereafter, arguments can be confined to what the level of this price should be.

It would give us a single control lever, like the UK Monetary Policy Committee’s interest rates lever. With the MPC, all arguments boil down to the appropriate setting of this single lever.

But there’s a problem. According to the authors, a strength of their idea is that many countries would prefer to implement a (commonly agreed) price internally; it avoids having to buy ‘expensive credits’ from ‘rival’ countries. No money flows between countries. But when viewed from the South, the proposal looks like a scheme to keep money in the North.

So the authors propose a Green Fund to transfer money from rich to poor countries. But that immediately returns us to conflicting incentives. Even if fund transfers are linked to the carbon price (as the authors suggest), they remain transfers and a source of wrangling.

Is there a better way? Yes, if we use some lateral thinking. We need a single, global climate lever - but it doesn’t have to be a price.

All too often it seems that carbon pricing (whether achieved through taxes or trading) is a rich person’s idea: costs hit the poor, and profits go to governments, corporations and financial institutions. But we’re all in this climate mess together. Who owns the sky? We all do. So what about a system where we get the money?

Imagine a global cap (or carbon budget, as urged by Kevin Anderson only last week), implemented by means of a global auction for fossil fuel extraction permits, and with the auction proceeds shared out equally to the world’s adult population.

This system is called Cap & Share (the same principles underpin ‘Fee & Dividend’ as advocated by the Citizens’ Climate Lobby, James Hansen and others). It’s a global system, not an international one: national boundaries are as irrelevant to Cap & Share as they are to air molecules. But that’s fine - after all, it’s global warming, not international warming. Cap & Share implements a global budget without the need for national budgets.

In fact the Cap provides a single, effective climate lever. Meanwhile, as explained below, the Share is a way through the ‘transfers’ impasse.

The sharing out of the money as ‘carbon cashback’ payments has the effect of redistributing money from rich to poor (more accurately, from high emitters to low emitters). Why? Because carbon prices affect high emitters more, but the cashback is the same for everyone. For low emitters the cashback outweighs carbon-price effects.

This redistribution happens both within and between countries, automatically, without any fuss or separate mechanism. And crucially, the psychological framing is of fair shares rather than transfers. We all get the cashback as a right; not through largesse from people who created the problem in the first place. ‘Equal shares’ is a focal point too: it has a robust fairness, like ‘one person one vote’.

Cap & Share is simple, fair, and it gives us a climate lever. And to misquote Archimedes: with the right lever we can save the world.