A Globally Harmonized Carbon Price Framework for Financing the Green Climate Fund

Abstract

Financing a proper response to climate change after Kyoto will require another look at both burden sharing and funding mechanisms. After describing the risks of cap-and-trade with carbon offsets and the advantages of a harmonized carbon tax, a method is proposed to utilize a globally harmonized carbon price to finance the Green Climate Fund. A common minimum carbon price is set across all nations, which can choose either a carbon tax or an emissions trading price floor, with any carbon offsets applying only above the price floor. The harmonized minimum carbon price is incrementally increased until 2050 to reach the cost of atmospheric removal and achieve a sustainable equilibrium. This method does not explicitly require setting otherwise uncertain global emissions caps, but total global emissions can be regulated nevertheless, by monitoring emissions and adjusting the minimum carbon price trajectory. Carbon revenues collected internally within nations are used for internal investments in climate change, with a globally determined minimum percentage applied towards mitigation. Financing for the Green Climate Fund is generated from transferring a percentage of the collected revenues, based on national wealth and a sliding window of historical responsibility for fossil fuel emissions. Collected revenue is disbursed for climate funding based on a set of national climate need factors for adaptation and mitigation, including preserving strategic carbon absorbers, low-carbon infrastructure, technology transfer and family planning. In the interest of distributive fairness, nations themselves determine the need factors of each other. 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, relative national wealth factors with thresholds for fund contributors and recipients, 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 finance across all nations on both a global and regional level.