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Using a harmonized carbon price framework to finance the Green Climate Fund

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  • Silverstein, David N.

Abstract

Funding a response to climate change after Kyoto will require another look at both burden sharing and funding mechanisms. After reviewing the risks of cap-and-trade with carbon offsets and the advantages of a harmonized carbon tax, a method is proposed to utilize a harmonized carbon price to finance the Green Climate Fund. A common carbon price is set across all nations with either a carbon tax or an emissions trading floor price with carbon offsets excluded. The harmonized carbon price is incrementally increased until 2050 to reach the cost of atmospheric removal and achieve equilibrium. Carbon revenues collected internally within nations are used for internal investments in climate change. Financing for the Green Climate Fund is generated from transferring a percentage of the collected revenues, based on a sliding window of historical responsibility for fossil fuel emissions and national wealth. Collected revenue is disbursed for climate aid based on a set of national climate need factors for adaptation and mitigation, including preserving strategic carbon absorbers, low-carbon infrastructures, technology transfer and population management. In the interest of distributive justice, nations themselves determine the need factors of each other. Unlike cap-and-trade, this method does not explicitly set emissions caps, but total global emissions can be regulated nevertheless. Formulas are presented for collection and disbursement, which require parameters for a globally harmonized carbon price, a climate fund contribution rate, historical responsibility from fossil fuel emissions, a national wealth threshold for fund contributions and need factors for each nation. Published economic and emissions data are used with the formulas to demonstrate an example of how the financing can work. This presents an equitable way to address climate needs across all nations on both a global and regional level.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 35280.

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Date of creation: 08 Dec 2011
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Handle: RePEc:pra:mprapa:35280

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Keywords: climate change; global warming; green climate fund; carbon tax; cap-and-trade; climate finance; Kyoto protocol;

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  1. Frank Ackerman, 2008. "Carbon Markets and Beyond: The Limited Role of Prices and Taxes in Climate and Development Policy," G-24 Discussion Papers 53, United Nations Conference on Trade and Development.
  2. Ackerman, Frank & Stanton, Elizabeth A., 2011. "Climate risks and carbon prices: Revising the social cost of carbon," Economics Discussion Papers 2011-40, Kiel Institute for the World Economy.
  3. Hufbauer, Gary Clyde & Kim, Jisun, 2009. "Climate policy options and the World Trade Organization," Economics Discussion Papers 2009-20, Kiel Institute for the World Economy.
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