David Bradford led a study on an innovative alternative to traditional cap and trade programs for reducing carbon emissions. Rather than establish emission caps for individual countries, this program would determine desired reductions of emissions for the globe and allow market forces to determine the distribution of the cuts.
In this scheme, the world’s countries would participate in an international institution that would determine the size of emissions cuts necessary for the global good, then jointly fund fiscal incentivesfor these reductions. An unlimited trading system would allow every company to sell off part of its emissions to a central bank, spurring competition for emissions payoffs and allowing market forces to determine where and how emissions would be reduced.
This system has distinct advantages over traditional emission cap schemes. For one, an “invisible hand,” rather than government negotiators, would determine the distribution of emissions cuts among countries. In addition, unlimited trading would lower the costs of emissions reductions made.
Visiting Research Economist Richard Tol has used Bradford’s proposal to solve a non-cooperative emission reduction game with international permit trade. That work further shows that proportional liability for climate change impacts would increase incentives to reduce greenhouse gas emissions in developed countries, but reduces incentives in developing countries. Global emission reduction would not change much. On the other hand, joint and several liability would increase abatement incentives everywhere.