Financial Way to a Climate Agreement in 2015?

The Paris climate summer represents the last chance to lay the foundations for a universal agreement. An ambitious climate agreement is based on: (1) a commitment by governments, (2) an independent monitoring, reporting and verification (MRV) system and (3) the introduction of international carbon pricing. In this paper we propose a method combining taxation and allowances markets. First, the introduction of an international carbon bonus-malus system, with a tax of around $7 per tonne of CO₂, calculated for each country on the basis of the difference between its average emissions per capita and the world average. This pricing system would have the dual objective of encouraging countries with low emissions per capita to join the common MRV system and of facilitating compliance with the pledge to make an annual transfer of $100 billion to the least developed countries. Second, the creation of a transcontinental carbon market, based on the emissions trading systems being developed in Europe, China and the United States. Interconnecting these markets requires setting up a common system of governance to ensure that major emitters fully commit themselves to trajectories consistent with the objective of limiting global warming to 2°C.