Implementing the climate change convention: taxes or tradable abatement obligations equals coercion or negotiation

Abstract

Technological change external to the energy supply industry – sink enhancement and demand side efficiency improvements – is key to a least–cost greenhouse gas response strategy. The potential for a low cost global forestry and biofuel based response is noted. Enlisting energy supply firms' expertise to manage such technology change entails the use of policy instruments congenial to managerial involvement. Tradable abatement obligations (equivalent to uniform voluntary agreements and to a dedicated carbon tax) provide a greater incentive to external technological change than do conventional economic instruments (carbon taxes and tradable emissions permits). A process of negotiated transition from voluntary agreements to tradable abatement obligations is described and aspects of the long run policy regime discussed.