Negotiators urged to ditch "reckless" cap-and-trade gamble

One of the top economists in the US has today urged political leaders to abandon the "reckless gamble" of the Kyoto Protocol's approach to carbon trading and instead adopt carbon taxation as a proven and more effective means of putting a price on carbon.

Professor William D Nordhaus of Yale University is one of the first economists to study the impacts of climate change and an advisor to the US government on the Congressional Budget Office Panel of Economic Experts. He said that carbon taxes would provide greater price certainty to businesses, make it easier to encourage emerging countries to enter into an international deal on climate change and would be less susceptible to corruption than alternative cap-and-trade measures.

"Tax systems may be hated," he admitted. "But they are tried and tested in every country."

He argued that conversely the current fixation with cap-and-trade and the carbon trading mechanisms set out under the Kyoto Agreement were largely untested and "inherently" resulted in price volatility.

"To bet the world climate system on an untested approach with such clear flaws is, in fact, a reckless gamble," he warned. "It would be better to recognise this failure and act now."

Nordhaus said that a system that allowed countries to set their own carbon tax would also make it easier for emerging countries that are wary of signing a global deal to commit to putting a price on carbon.

In addition to calling for a carbon tax, Nordhaus also urged negotiators to ditch the Clean Development Mechanism carbon offsetting scheme, which he described as a "sham".

He said that while many businesses and countries had used CDM credits in their carbon accounts, there was no satisfactory way of verifying the emission reduction from CDM projects as they were located in countries with no carbon caps.

He argued that as a result, CDM approved credits, or CERS, were an "opaque" instrument equivalent to the now much maligned derivatives. He joked that perhaps those firms selling CERs were "the same firms that a few years ago were selling mortgage-backed securities".