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'Price collar' could break climate deadlock

06 December 2012

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Professor Warwick McKibbin is an ANU Public Policy Fellow at Crawford School. Professor McKibbin was a member of the Board of the Reserve Bank of Australia from 2001- 2011. He teaches Modelling the World Economy: techniques and policy implications (IDEC8127).

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The world needs to move away from only setting national carbon emission targets, and instead supplement these with an agreed maximum and minimum carbon price that clearly measures the effort it takes to reach these targets, if it wants to break the deadlock on reaching a binding international agreement, according to new research.

Professor Warwick McKibbin of the Crawford School of Public Policy said that agreeing to a national target together with a climate ‘price collar’– a value attached to the effort and the cost of the attempts to reach the target – would allow the world’s nations to fairly compare their own and each other’s efforts. His team’s work, in collaboration with researchers at the Brookings Institution analysing the approach, is published in a new working paper, ‘Bridging the gap: Integrating Price Mechanisms into International Climate Negotiations’.

“The international negotiations on climate policy need to recognise that common targets for emission reduction does not equate to equal effort by countries,” said Professor McKibbin.

“To date, there has been little progress made because the negotiators continue to focus on what target a country will take.

“To get around this, we suggest an approach that moves on from Copenhagen to enable countries to adopt their own actions and still comply with an agreement, either by reaching targets by having policies that clearly demonstrate a minimum degree of effort.

“We then propose a way to measure effort by converting climate policies within a country into a carbon price equivalent policy, and then use that to measure the effort of a country in reaching a commitment. This is similar in approach to international trade negotiations where all trade barriers are converted into equivalent tariffs and then these tariff measures are compared across countries.”

Professor McKibbin said that by adopting this approach at international climate negotiations, Australia could make sure that it’s not committing to expensive and unreachable targets that place it at a disadvantage internationally.

“Australia needs to be leading the debate on carbon policy design, rather than following approaches such as Kyoto that few other countries are willing to adopt.

“The new approach we propose would reduce the risk to Australia of committing to excessively expensive carbon reduction targets, yet still play a positive role in the global reduction of carbon emissions,” he said.

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