And Left Only One Choice

Ho ow w O Of ff fs se et ts s D De ef fe ea at te ed d t th he e K Ky yo ot to o P Pr ro ot to oc co ol l Abstract Developing countries sell carbon offset credits at a profit, but that profit would be reduced if they accepted a cap on emissions. This linkage increases their resistance to accepting such caps. Also, the profitability of offsets motivates developing countries to insist on stricter caps on industrialized na‐ tions, because stricter caps increase the demand for offset credits supplied by developing countries. Caps on their own emissions, however, have now been rejected by developing countries. This leaves offsets, on a massive scale, as the only path within the Kyoto framework for restraining the bulk of emissions growth. But offsets over‐pay for emission reductions, and are inefficient and often corrupt. Hence offsets could never be implemented on a sufficient scale to succeed. Instead, a new path to international commitment is required. The remaining possibility for commitment is flexible global carbon pricing, which allows a choice of cap or tax. Developing countries could accept an equal tax, because it leaves them room to grow to the level of developed countries instead of temporarily capping their growth. The lowest emitters would receive international assistance conditional on the implementation of a carbon tax, and Eu‐ rope could keep its caps.