Voting on Prices vs. Voting on Quantities in a World Climate Assembly

Martin L Weitzman

doi:10.2139/ssrn.2555917

Abstract

This paper posits the conceptually useful allegory of a futuristic World Climate Assembly that votes on global carbon emissions via the basic principle of majority rule. Two variants are considered. One is to vote on a universal price (or tax) that is internationally harmonized, but the proceeds from which are domestically retained. The other is to vote on the overall quantity of total worldwide emissions, which are then distributed for free (via a pre-decided fractional subdivision formula) as individual allowance permits that are subsequently marketed in an international cap-and-trade system. The model of the paper suggests that the majority-voted price is likely to be less distortionary and easier to enact than the majority-voted total quantity of permits. While the study is centered on a formal model, the tone of the policy discussion resembles more an exploratory think piece.

Highlights

Global Warming GridlockThroughout this paper I use the terms “climate change”and “global warming”interchangeably
Even while acknowledging that it only involves one layer of negotiations, one could ask on the price side what might induce di¤erent countries to agree to a single harmonized charge for carbon emissions
It all begins with the recognition that any resolution of the global warming free-rider problem requires a collective commitment to some binding restriction on the sovereign right of nations to freely emit as much carbon dioxide as they wish

Summary

Introduction

Auctioning o¤ the allowances would eliminate this income-e¤ect distortion on the individually desired level of free permit allocations, but we are e¤ectively back in a tax-like system Both approaches (an internationally harmonized but domestically collected carbon price, and freely distributed marketable permits) are subject to immense – sometimes seemingly overwhelming –criticisms. It presumes a state of mind where the climate change problem has become su¢ ciently threatening on a grassroots level that world public opinion is ready to consider novel governance structures which involve relinquishing some national sovereignty in favor of the greater good. The other is to vote on the overall quantity of total worldwide emissions, which are distributed for free (via a pre-decided fractional subdivision formula) as individual allowance permits subsequently marketable in an international cap-and-trade system. A less restrictive voting rule, such as majority rule, would render progress more likely, and is at least worth considering

The Model

Voting on a Single Price in the WCA

Problems With Assigning Quantities Among Sovereign Entities

Voting on the Total Quantity of Tradeable Permits in the WCA

Concluding Remarks