On a World Climate Assembly and the Social Cost of Carbon

Abstract

This paper argues that a uniform global tax‐like price on carbon emissions, whose revenues each country retains, can provide a focal point for a reciprocal common climate commitment, whereas quantity targets, which do not nearly so readily present such a single focal point, tend to rely ultimately on individual quantity commitments. The 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. A WCA‐like uniform price‐tax counters self‐interest by incentivizing countries or agents to internalize the externality because each WCA agent's higher abatement cost from a higher emissions price is counterbalanced by that agent's extra benefit from inducing all other WCA agents to simultaneously lower their emissions in response to the higher price. The paper derives fresh insights and new simple formulae that relate each emitter's most‐preferred world price of carbon to the world ‘social cost of carbon’ (SCC), and further relates the WCA‐voted world price of carbon to the world SCC. Some implications are discussed. The overall methodology of the paper is a mixture of mostly classical with some behavioural economics.