ABSTRACT

The failure of the 2009 Copenhagen climate negotiations does not encourage optimism about reaching a meaningful climate agreement. This paper describes a proposal for the next climate agreement that entitles countries to discharge their treaty obligations by paying a ‘fine’. This escape clause provides cost insurance, simplifies the problem of enforcing compliance, and increases incentives to participate in the agreement. The proposal requires that developed countries commit to emissions reductions, maintained by means of cap and trade rather than carbon taxes. A Central Bank maintains stability of carbon prices by defending a price ceiling and floor.

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