What about the price of carbon?

The mysterious emissions trajectories implicit in the various draft COP15 agreements got me thinking about the economic implications of various paths. Suppose the following scenario, consistent with the Beijing draft (Copenhagen Accord) or recent KP draft actually happened:

  • deep 2020 cuts for the developed world
  • no binding commitments for the developing world
  • supported NAMAs in developing countries don’t count as offsets against developed country commitments (i.e. developed commitments are met domestically)
  • border carbon adjustments (tariffs on the greenhouse gases embodied in trade goods) are illegal
  • ongoing globalization

In that case, price of carbon would be very high in the developed world, and very low in the developing world. That creates intense pressure for leakage. Emissions-intensive industries would simply relocate to developing countries. Total emissions wouldn’t necessarily go down, except to the extent that relocated capital was newer and cleaner, and might even go up due to greater transport distance and less stringent environmental regulation.

Another consequence is that investors in the developing world, including governments investing in infrastructure, would proceed to build GHG-intensive capital that would just have to be unbuilt in a decade or two. That’s not development; it’s unsustainable lock-in to a dead-end economic, technical, and lifestyle trajectory.

Probably the first thing to happen would be for workers (aka voters) in the developed world to freak out at the resulting job losses, causing the whole agreement to unravel. So, I think you can scratch this kind of arrangement off the list of possible or attractive agreements. If we want to achieve the underlying development goals that motivate people to ask for such things, we need to find a different path.

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