Designing a realistic climate change policy that includes developing countries

In earlier papers we have argued that the Kyoto Protocol is not sustainable as a global climate change policy and have proposed an alternative policy regime based on a coordinated but decentralized system of national permit trading systems with a fixed internationally negotiated price for permits. In this paper we extend this earlier proposal to include an explicit mechanism for participation by developing countries. The idea is to give incentives for carbon abatement in developing countries through price signals without imposing short or medium term costs in these economies. This new system is based on the creation of two types of assets in each participating country – emission endowments and emission permits. We argue that this new system is an effective and realistic way to move forward on a sustainable regime for climate change policy.