Pay the Global South for climate damage, but only if it prices carbon, says economist Greenstone

Rich nations should compensate developing countries for the climate damage caused by their emissions, but only if those countries implement carbon pricing, according to a forthcoming book by University of Chicago economist Michael Greenstone. The book, co-authored with Nobel Prize-winning economists Abhijit Banerjee and Esther Duflo, suggests that Indians receive unencumbered funds based on the damage caused by the carbon emissions of OECD countries.

The money would go directly to individuals, not governments, and the transfer would be contingent on the Global South adopting carbon pricing. Greenstone believes that 82% of future emissions will come from outside the OECD, and moral appeals have not been effective. To calculate India's damage, Greenstone proposes a deal where the European Union and India negotiate the exact parameters.

This approach would not require global participation and could be implemented between major economies like the EU and India. Greenstone has previously worked on market-based solutions to pollution, such as the Surat Emissions Trading Scheme, which achieved high compliance rates through permit trading and fine enforcement. He is currently developing similar markets for sulphur dioxide and water in Indian states, with the goal of linking them together.

The main challenges are tracking emissions accurately and determining the appropriate trade-off between economic costs and environmental quality.