The architecture of climate economics: Designing a global agreement on global warming

The natural sciences are doing an admirable job of describing the geophysical aspects of climate change. The science behind global warming is well established. But designing an effective political and economic strategy to control climate change will require the second culture—the social sciences—to analyze how to harness our economic and political systems to achieve our climate goals effectively and at low cost. This second task requires examining questions such as the impacts on the economy and on non-market activities, the costs of slowing or mitigating climate change, the strength and timing of emissions reductions with an eye to the costs and benefits of slowing climate change, the risks of asymmetric and irreversible damages, and the policy instruments for implementing such emissions reductions. The author addresses this final question: how to devise policy instruments. The 2009 United Nations Climate Change Conference in Copenhagen meeting failed to reach a consensus on a successor agreement to the Kyoto Protocol, the global agreement that provides for emissions reductions for participating countries. This agreement has not resulted in global emissions reductions; its model creates inefficient and opaque mechanisms, akin to mortgage-backed securities, that have to date produced minimal emissions reductions. Only a harmonized global price on carbon—most easily implemented by a carbon tax—can achieve significant emissions reductions by sending a consistent signal to the governments, innovators, corporations, and individual consumers across all sectors and geographic boundaries.