Economists Propose Direct Climate Payments Tied to Carbon Pricing

Wealthy industrialised nations should send direct cash transfers to people in developing nations to cover climate harm caused by past emissions, provided those developing nations set a price on carbon. That proposal forms the core of an upcoming book titled Just Economics, authored by University of Chicago economist Michael Greenstone alongside Nobel laureates Abhijit Banerjee and Esther Duflo.

Direct Payments

Under the plan, citizens in countries like India would receive unrestricted funds sent straight to individuals rather than state treasuries, calculated according to the environmental damage inflicted by emissions from the Organisation for Economic Co-operation and Development. Mr. Greenstone noted that moral arguments have failed, as eighty-two percent of future emissions are projected to originate outside the OECD bloc. The proposed financial transfer relies on a mutual agreement where the Global South adopts carbon pricing in exchange for these funds, with specific terms open to bilateral negotiation between entities such as the European Union and India.

Market Solutions

Highlighting the failure of traditional climate finance ahead of next month's annual climate summit in Turkey, Mr. Greenstone pointed to his prior work on market-based pollution controls. His team previously partnered with the Gujarat Pollution Control Board in 2010 on the Surat Emissions Trading Scheme for textile plants, which achieved ninety-nine percent compliance through strict enforcement and permit trading. Similar trial markets for sulphur dioxide are now underway in Maharashtra, with ongoing discussions in Rajasthan, Uttar Pradesh, Madhya Pradesh, Bihar, and Haryana.

Context

Carbon pricing is widely viewed by economists as an efficient way to curb greenhouse gas emissions by making polluters pay for the environmental costs they generate. The OECD is a group of mostly developed economies whose historical industrial activity accounts for a major share of accumulated global greenhouse gases. Such market mechanisms attempt to balance the economic costs of running industries with the need to protect air quality and public health.