Working Paper: NBER ID: w22813
Authors: Martin Weitzman
Abstract: This paper postulates the conceptually useful allegory of a futuristic “World Climate Assembly” (WCA) that votes for a single worldwide price on carbon emissions via the basic democratic principle of one-person one-vote majority rule. If this WCA framework can be accepted in the first place, then voting on a single internationally- binding minimum carbon price (the proceeds from which are domestically retained) tends to counter self-interest by incentivizing countries or agents to internalize the externality. I attempt to sketch out the sense in which each WCA-agent's extra cost from a higher emissions price is counter-balanced by that agent's extra benefit from inducing all other WCA-agents to simultaneously lower their emissions in response to the higher price. The first proposition of this paper derives a relatively simple formula relating each emitter's single-peaked most-preferred world price of carbon emissions to the world “Social Cost of Carbon” (SCC). The second and third propositions relate the WCA-voted world price of carbon to the world SCC. I argue that the WCA-voted price and the SCC are unlikely to differ sharply. Some implications are discussed. The overall methodology of the paper is a mixture of mostly classical with some behavioral economics.
Keywords: climate change; carbon pricing; public goods; international cooperation; social cost of carbon
JEL Codes: F51; H41; K23; Q54; Q58
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| WCA framework (F53) | cooperation among countries (F55) |
| cooperation among countries (F55) | higher price on carbon emissions (Q58) |
| higher price on carbon emissions (Q58) | reflects social cost of carbon (H43) |
| WCA framework (F53) | internalize the externality of carbon emissions (D62) |
| higher emissions price (Q52) | lower emissions by agents (Q52) |
| WCA framework (F53) | higher emissions price (Q52) |
| uniform carbon price (D41) | internalize the externality of carbon emissions (D62) |