How a Minimum Carbon Price Commitment Might Help to Internalize the Global Warming Externality

Martin L. Weitzman

NBER Working Paper No. 22197
Issued in April 2016
NBER Program(s):   EEE

It is difficult to resolve the global warming free-rider externality problem by negotiating many different quantity targets. By contrast, negotiating a single internationally-binding minimum carbon price (the proceeds from which are domestically retained) counters self-interest by incentivizing countries to internalize the externality. In this contribution I attempt to sketch out, mostly with verbal arguments, the sense in which each country's extra cost from a higher emissions price is counter-balanced by that country's extra benefit from inducing all other countries to simultaneously lower their emissions in response to the higher price. Some implications are discussed. While the paper could be centered on a more formal model, here the tone of the discussion resembles more that of an exploratory think piece directed to policymakers and the general public.

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Document Object Identifier (DOI): 10.3386/w22197

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