The assessment: Climate-change policy

The paper provides a guide to climate-change policy, and, in particular, the three core components: targets, instruments, and institutional structures. First, the optimal path for reducing carbon-dioxide (CO2) emissions, and the role of the social cost of carbon in the estimation and revision of the path are set out. Second, the policy instruments, or combination of instruments-taxes, permits, and command-and-control-which are likely to be most efficient within the political constraints are reviewed. Finally, the design of institutional structures most conducive to the facilitation of international agreements (such as the Kyoto Protocol) and the establishment of credible global climate-change policies is discussed. The paper identifies the considerable inefficiencies in existing policies, and the scope for policy improvements.