In this paper, I introduce a new emissions trading system (ETS) design to address the problems with existing ETSs and carbon taxes. First, existing ETS designs inhibit emissions but do not constrain warming to any set level. Existing ETSs have the indirect objective of reducing emissions instead of directly reducing warming. Even a global mechanism using an existing ETS cannot guarantee a particular warming path. Part 1: A Price on Warming addresses this. My proposed market trades contracts tied to temperature in a double-sided auction  of emissions permits and sequestration contracts . Unlike existing ETSs, the mechanism has a consistent timescale and metric tied to warming, with explicit limits on global temperature in every period into the far future . Every auction finds prices for emissions into the far future. Second, if a jurisdiction does not require firms to manage their emissions, the firms have little incentive to do so. Part 2: A Climate Insidium addresses this. My design incentivizes firms to participate even if their jurisdictions do not join. With sanctions from member jurisdictions and participating firms, the design has bottom-up incentives for joining, and the incentives rise over time under realistic conditions, potentially resulting in a rush to join. Third, existing designs have high transaction costs for implementation , requiring international treaties to begin. Part 3: A Faster Path Forward addresses this. I propose a path without national or international action to begin. A coalition can implement these rules, creating political force to accelerate participation. Full implementation still requires national agreements. This design appears to be closer to "first best" , with a lower cost of climate mitigation , than any in the literature, while increasing the certainty of avoiding catastrophic global warming. It might also provide a faster pathway to implementation  .
Existing emissions trading system (ETS) designs inhibit emissions but do not constrain warming to any fxed level, preventing certainty of the global path of warming. Instead, they have the indirect objective of reducing emissions . They provide poor future price information. And they have high transaction costs for implementation, requiring treaties and laws. To address these shortcomings, this paper proposes a novel double-sided auction mechanism of emissions permits and sequestration contracts tied to temperature. This mechanism constrains warming for many (e.g., 150) years into the future and every auction would provide price information for this time range. In addition, this paper proposes a set of market rules and a bottom-up implementation path. A coalition of businesses begin implementation with jurisdictions joining as they are ready. The combination of the selected market rules and the proposed implementation path appear to incentivize participation. This design appears to be closer to "first best" with a lower cost of mitigation than any in the literature, while increasing the certainty of avoiding catastrophic warming. This design should also have a faster pathway to implementation . A numerical simulation shows surprising results, e.g., that static prices are wrong, prices should evolve over time in a way that contradicts other recent proposals, and "global warming potential" as used in existing ETSs are generally erroneous .
R
In this paper, I introduce a new
Existing
D
design to address the problems with existing ETSs and carbon taxes. First, existing ETS
R
set level. Existing ETSs
fxed level, preventing certainty of the global path of warming. Instead, they
R
instead of directly reducing warming. Even a global mechanism using an existing ETS cannot guarantee a particular warming path. Part 1: A Price on Warming addresses this. My proposed market trades contracts tied to temperature in a
. They provide poor future price information. And they have high transaction costs for implementation, requiring treaties and laws. To address these shortcomings, this paper proposes a novel
A
mechanism
R
. Unlike existing ETSs, the mechanism has a consistent timescale and metric tied to warming, with explicit limits on global temperature in every period into the far future . Every auction finds prices for emissions into the far future. Second, if a jurisdiction does not require firms to manage their emissions, the firms have little incentive to do so. Part 2: A Climate Insidium addresses this. My design incentivizes firms to participate even if their jurisdictions do not join. With sanctions from member jurisdictions and participating firms, the design has
tied to temperature. This mechanism constrains warming for many (e.g., 150) years into the future and every auction would provide price information for this time range. In addition, this paper proposes a set of market rules and a
R
incentives for joining, and the incentives rise over time under realistic conditions, potentially resulting in a rush to join. Third, existing designs have high transaction costs for implementation , requiring international treaties to begin. Part 3: A Faster Path Forward addresses this. I propose a path without national or international action to begin. A coalition can implement these rules, creating political force to accelerate participation. Full implementation still requires national agreements.
implementation path. A coalition of businesses begin implementation with jurisdictions joining as they are ready. The combination of the selected market rules and the proposed implementation path appear to incentivize participation.
D
,
R
climate mitigation ,
mitigation
R
global warming. It might also provide
warming. This design should also have
A
. A numerical simulation shows surprising results, e.g., that static prices are wrong, prices should evolve over time in a way that contradicts other recent proposals, and "global warming potential" as used in existing ETSs are generally erroneous