FROM NATIONAL TO HARMONIZED INTERNATIONAL POLICIES - The Climate Casino - page 249

Nations are in a stalemate in negotiations on climate change. Every
year sees further rounds of international meetings and negotiations
in conferences of the parties: Nairobi in 2006, Bali in 2007, Poznan in
2008, Copenhagen in 2009, Cancun in 2010, Durban in 2011, Doha
in 2012. Every meeting ends with several reports and decisions, along
with complaints that nothing is being achieved. 5 The Kyoto model is a
dead end.
STRUCTURE OF INTERNATIONAL AGREEMENTS
An effi cient policy to slow global warming requires that national
policies be harmonized among countries. Strictly speaking, policy har-
monization means that the marginal costs of emissions reductions in
each country are the same. The idea here is exactly parallel to my dis-
cussion of the rationale of national emissions trading. Suppose an opti-
mal emissions target is 30 billion tons of CO 2 per year. To minimize the
costs of meeting this objective, the cost of the last unit reduced (which
is the marginal cost in economists' language) would need to be equal
in every sector of every country. Go back and read the text around Fig-
ure 34. Just replace “fi rm” with “country,” and the reasoning is exactly
the same.
The easiest way to achieve harmonization of marginal costs is by
ensuring that the prices of CO 2 emissions are equalized in every coun-
try. This means that every fi rm will set its marginal costs of abatement
equal to the CO 2 price, and that will mean that every fi rm in every
country will have the same marginal cost. This will imply that the cost
of meeting the global emissions objectives is minimized. While this ob-
jective will strike many as utopian to the n th degree, it is important to
keep that ideal in mind when considering different approaches to na-
tional and global policies.
As with approaches inside countries, there are two approaches that
can harmonize policies across countries. One way to do this is through
an international cap-and-trade policy, such as the one run by the EU or
that envisioned in the Kyoto Protocol. Under such plans, country emis-
sions would be limited (cap), and the emissions allowances could be
bought and sold among countries (trade). The market mechanism