Analyses | 27 June 2006

A credible foundation for long term international cooperation on climate change

In this Working Paper in International Economics, the Lowy Institute's Professor Warwick McKibbin and Peter Wilcoxen write that to succeed in reducing carbon dioxide emissions, a climate policy must establish credible long-term incentives for investments in new energy sector capital and in research and development. 

Warwick McKibbin , Peter J. Wilcoxen

  • Warwick McKibbin
  • Peter J. Wilcoxen

In this Working Paper in International Economics, the Lowy Institute's Professor Warwick McKibbin and Peter Wilcoxen write that to succeed in reducing carbon dioxide emissions, a climate policy must establish credible long-term incentives for investments in new energy sector capital and in research and development. 

Warwick McKibbin , Peter J. Wilcoxen

  • Warwick McKibbin
  • Peter J. Wilcoxen
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Executive Summary

The authors argue that credibility implies that international agreements should focus on enhancing coordination and collaboration between countries, rather than on coercion. At the national level, credibility requires political and economic incentives that can be provided by long term tradable emissions permits, but it needs more flexibility than can be provided by a conventional permit system. They argue that the best mechanism for providing credible long term incentives is a hybrid system of long and short term emissions permits.