Carbon Budgets, International Agreements and Carbon Pricing

The carbon budget. Global temperature rise is proportional to the cumulative amount of carbon dioxide ever emitted, not to this year's rate. That gives a simple, brutal number: to stay below a temperature limit there is a fixed remaining budget. Humanity has emitted about 2 500 GtCO₂ since 1850; roughly 250 Gt remain for a good chance of 1.5 °C and about 1 100 Gt for 2 °C. At today's 40 Gt a year, the 1.5 °C budget lasts about six years and the 2 °C budget under thirty. Two consequences follow. Delay is not waiting; it is spending the budget. And a target such as "net zero by 2050" means nothing on its own — what counts is the area under the emissions curve between now and then, so a path that falls immediately uses far less budget than one that stays flat and drops late.

Kyoto and Paris. The Kyoto Protocol (1997) worked top-down: binding reduction targets, about 5% below 1990, for developed countries only, with developing countries exempt because their historic emissions were small. The United States never ratified; Canada withdrew; and industry migrated to unbound countries, so Kyoto covered about 15% of global emissions by its end. The Paris Agreement (2015) works bottom-up: every country submits its own nationally determined contribution, reports transparently and is expected to strengthen it every five years, aiming to hold warming well below 2 °C and pursuing 1.5 °C. Nearly all countries joined, covering about 95% of emissions — but there are no penalties, and the pledges submitted so far add up to about 2.5–2.8 °C. Paris traded enforceability for participation; whether that was the right trade is the standard evaluation question.

Why climate is harder than ozone. The Montreal Protocol succeeded because CFCs came from a few dozen factories, substitutes existed and were cheap, and the benefit was immediate and local. Carbon dioxide comes from every economy's energy system, substitutes are expensive and unevenly available, and the benefit of cutting arrives decades later and everywhere — the classic collective-action problem, where each country gains by letting others cut. Add equity: rich countries hold most of the cumulative emissions, poor countries suffer most of the impacts and need energy to develop, so any agreement must settle who cuts, who pays and who is compensated.

Carbon pricing. The economic remedy is to make emitters pay. A carbon tax fixes the price per tonne; emissions fall by an amount that cannot be known in advance. A cap-and-trade scheme fixes the total quantity of permits; the price emerges from trading and can swing. Both push costs onto consumers through fuel and electricity bills, which is regressive unless revenue is returned as dividends or spent on the poor — the reason carbon taxes have been repealed where that was not done. Both also leak: production moves to countries without a price, unless border adjustments follow it.