Replace Kyoto protocol with global carbon tax, says Yale economist

The Kyoto protocol is reckless gamble that penalises participating countries, Copenhagen climate change congress told

The world should dump the "inefficient and ineffective" Kyoto protocol and replace it with a global carbon tax, leading economist William Nordhaus said yesterday.

"To bet the world's climate system on the Kyoto approach is a reckless gamble", he told the climate change congress in Copenhagen. "Taxation is a proven instrument. Taxes may be unpopular, but they work. The Kyoto model is largely untested and the experience we have tells us it will not meet our objective — to stablise the world climate system."

This week's meeting of more than 2,000 scientists and policy-makers is intended to lay the groundwork for a major UN summit in Copenhagen in December that hopes to negotiate a new climate treaty to succeed the Kyoto protocol.

Nordhaus, professor of economics at Yale university, critricised the Kyoto system in trenchant terms. "The developed countries that have emissions reductions targets account for only half of the world's carbon emissions. Our models show that a 50% non-participation results in a 250% increase in the cost to those who are participating, and this is a huge penalty we can no longer afford."

He also attacked the Kyoto protocol's clean development mechanism (CDM), which allows industrialised countries that are not meeting their Kyoto targets to comply by 'buying in' carbon credits from projects in developing countries. "The CDM produces highly opaque instruments which are the climate equivalent of mortgage-backed securities and structured credit derivatives," he said.

He proposed that a carbon tax, levied on fossil fuels and transport, would be simple and effective. "It would create a reliable carbon price which would create the incentive we need to shift towards a low-carbon economy. Initially a carbon tax would affect producers, but as the price signal was passed through the economy it would drive the transformation to low-carbon technologies and efficient use of energy at every level."

Nordhaus insisted that his tax plan was achievable. "Many countries are very scared of signing up to emissions reductions commitents under the Kyoto protocol because they don't know if they can achieve them and are concerned as to the consequences if they don't. My suggestion is that they should be allowed, as an alternative to emissions targets, to commit to imposing a carbon tax at a minimum level. As a small country I would find this carbon tax model very attractive."

Cambridge economist Professor Michael Grubb agreed that "there is no doubt that governments will respond far better to climate change if they believe that there will be a substantial carbon tax in the future that everyone will have to pay". Jacqueline McGlade, director of the European Environment Agency, based in Copenhagen, also backed Nordhaus's plan. "His idea is very sensible. We need to move the burden of taxation away from labour to resources — and tax not just on carbon but other resources such as water to tackle the far wider environmental and resource problems we face."

Dan Kammen, professor of economics at Berkeley, said the world needs more than a carbon tax to tackle climate change.. "A uniform carbon tax may be very nice in theory, but we are not going to make climate policy on theory alone. Any carbon tax would need to be supplemented by policy, legislation, regulation and efficiency standards."

For example, Kammen said, huge investment is needed to rebuild electricity grids to accommodate a higher proportion of renewables and a carbon price could not achieve that in the necessary time frame. "How many of us would have a cellphone if we had to pay for 20 years of minutes upfront? We need financing to enable people to build clean energy into their homes on terms which makes it available to owners, landlords, renters and low-income groups."