This scheme is designed to create incentives for reduction in CO2 emissions while minimizing the harm to domestic production and employment. Both can be achieved because the scheme eliminates the incentive for importing from high emitting countries or countries that are not party to the treaty. It factors in past contributions so as not to penalize current high emitters while favoring past high emitters. It allows national politics to determine the size of the carbon tax in light of the economic incentives and disincentives in the scheme. Finally, the scheme is simple and the factors are transparent.

This scheme is presented not in the expectation that it will be adopted, but, because it is simple and fair (especially, it does not forget past contributions to CO2 emissions), it can be used to challenge proponents of schemes that are far more complicated and invite gaming the system (including economists’ favored emission trading systems).

1. Calculate an Emission Load Per Capita for each country i (ELPCi) =
Sum of (carbon fuels use over the last y years * discount factor for older emissions) / current population

• Update ELPCi’s every x years, and make those figures available to all.
• The discount factor might be 1/2^[(current year-year t)/positiveconstant], that is, a “half-life” for a country’s responsibility for past emissions = the positiveconstant.

2. x, y, and discount factor are agreed to by all countries signing on to the CO2 emissions reduction treaty.

• For example, x might be 5, y might be 100, and the positiveconstant in the discount factor might be 30.

3. Each country i in the treaty imposes its own carbon tax constant, ki, and taxes each unit of carbon fuel sold at ki * ELPCi. Ditto for each unit of biomass turned to CO2 through clearing, decay, or fires. Biomass accumulation, e.g., through reforestation, is rewarded by a negative tax (but if these end up turned back into CO2, they are positively taxed when that happens).

• These ki figures are available to all.
• The revenue is used to support energy conservation and alternative energy production.
• Biomass burned or decayed on non-private lands is still taxed, in that case by transferring funds from general revenue to the funds to support energy conservation and alternative energy production.

4. Each country in the treaty imposes duties (or provides an import subsidy) in its own currency on goods from country j equal to (ki-kj) * ELPCi per unit of carbon fuel used in the production and transport of the goods. (The subsidy reduces the cost in country i of goods from country j when ki < kj. This subsidy is paid out of carbon tax revenue.) For countries j not party to the treaty kj is taken as equal to the lowest of the the values among the treaty signing countries.

• kj is converted to the currency of country i using the exchange rate at the date of arrival of the import.

Notes

a. If country i sets its ki too low, goods it exports will have import duties imposed on them. Such countries won’t have tax revenue to support energy conservation and alternative energy production so its ELPC will stay high.

b. Equally importantly, the differences in ki’s and ELPC’s will be visible to all, so countries can be shamed into action as the effects of CO2-induced climate change become apparent.

c. Foreign owners of lands and fuel-using production are subject to the within-country taxes, but there are no offsets of their home country’s carbon usage. Markets for cross-national investments may continue as usual, subject to the usual uncertainties about exchange rates and, in this case, about changes that might be made in ki values by future governments.

d. This scheme does not promote population control; that has to happen by some other means.

e. This scheme does not provide support for adaptation to or mitigation of the effects of CO2-induced climate change; that has to happen by some other means. For example, a separate treaty could “tax” the carbon tax revenue to support this. After all, the effects of climate change on countries will not be proportional to their ELPCi.

f. This scheme may be duplicated in treaties that address other greenhouse, such as methane, and possible linked to them via equivalencies.

g. This scheme does not prevent a “race to the bottom,” where in every country sets a ki too low to prevent CO2 increases that lead to destructive climate change. At the same time, it does not harm countries that set a high ki. Which way things go depends on political pressure within countries based on a global responsibility and/or national interest for countries affected directly or indirectly by climate change.

Extracted from http://ptaylor.wikispaces.umb.edu/GlobalEmissions, 13 March 2010 version.