Most emissions control policies set a fixed limit, defined as a certain volume of gas. But a climate change program to reduce emissions of carbon dioxide may need to be more flexible. There is no scientific consensus regarding the concentration of carbon dioxide in the atmosphere that threatens dangerous instability in the climate. And no one knows the cost of reducing these emissions. It is difficult to estimate with any assurance their impact on industrialized economies that use huge amounts of electricity and depend on fast, readily available transportation.

In response, William Pizer suggests two solutions in Climate Policy Design under Uncertainty (Discussion Paper 05-44). Instead of basing policy on the conventional volume limit, he proposes instead to target intensity -- the ratio of carbon dioxide emissions to an economy's total output. Because limiting volume can potentially limits economic growth, many leaders in the developing world adamantly resist them. Intensity targets, in contrast, encourage more efficient use of fuel. Efficiency, in political terms, is a far more attractive goal.

Climate Policy Design Under Uncertainty William A. Pizer Discussion Paper 05-44 October 2005

Pizer's second suggestion is a safety valve for the price of emissions permits. Under a climate control program, those firms that are having trouble meeting their targets would be allowed to buy excess emissions permits from those that are under their allowed levels. The price would be left to the market. But the safety valve would set a price ceiling, at which the regulator would issue as many permits as necessary to keep the market price from breaking through the ceiling. The effect would be to provide assurance that the economic cost of the climate policy would not exceed a predictable amount.

If the cost is predictable and assured, Pizer observes, the volume of carbon dioxide reductions will be uncertain. To those who support rapid environmental progress, he acknowledges, that uncertainty may seem counterproductive. But as a political reality, he believes, the safety valve or some similar device may be necessary to meet the fear that costs could fly out of control. The question, he concludes, is whether getting started quickly with a climate policy is not more important than waiting for a consensus for stronger action.