Because of the global commons nature of climate change, international cooperation among nations will likely be necessary for meaningful action at the global level.  At the same time, it will inevitably be up to the actions of sovereign nations to put in place policies that bring about meaningful reductions in the emissions of greenhouse gases.  Due to the ubiquity and diversity of emissions of greenhouse gases in most economies, as well as the variation in abatement costs among individual sources, conventional environmental policy approaches, such as uniform technology and performance standards, are unlikely to be sufficient to the task.  Therefore, attention has increasingly turned to market-based instruments in the form of carbon-pricing mechanisms.  We examine the opportunities and challenges associated with the major options for carbon pricing:  carbon taxes, cap-and-trade, emission reduction credits, clean energy standards, and fossil fuel subsidy reductions.

"...[T]he credits a utility earns for a given source of generated electricity should be inversely proportional to the CO2 emissions associated with that source. Renewables and nuclear would earn full credit whereas natural gas and fuel oil sources would earn less, and conventional coal less than that. If properly structured, this can provide the right incentives for investment and retirement of electricity-generating capacity and the right incentives for dispatch from existing capacity."

Firms pay the costs of their R&D, but do not reap all the benefits. This causes the private sector to carry out less than the "efficient" amount of R&D of new climate-friendly technologies in response to given carbon prices. Hence, other public policies are needed to address this R&D "market failure."

The climate change talks in Cancun, Mexico, didn't solve all the world's climate problems. But they were hugely successful. Through the Cancun Agreements, 194 countries reached landmark consensus (even the US and China) to set emissions targets and limit global temperature increases.

The international climate negotiations in Cancun, Mexico, have concluded, and despite the gloom-and-doom predictions that dominated the weeks and months leading up to Cancun, the Sixteenth Conference of the Parties (COP-16) of the United Nations Framework Convention on Climate Change (UNFCCC) must be judged a success.  It represents a set of modest steps forward.  Nothing more should be expected from this process.

The Harvard Project on International Climate Agreements has agreed to help the Office of the Danish Prime Minister, in its role as incoming President of the 2009 Conference of the Parties, to prepare background papers and on-site briefings for a series of very high-level dialogues on climate change policy, hosted by the Prime Minister. These dialogues will each include about 25 participants, including CEOs of European and U.S. corporations, key officials from national governments and intergovernmental organizations, and leaders of major environmental NGOs. This paper on the subject of technology policies was prepared by the Harvard Project leadership for the second dialogue.