As negotiations to develop a strategy for addressing climate change continue in Warsaw this week it is worth considering some recent economic work about the usefulness of international climate change treaties. Nearly everyone concerned about climate change has heard of the Kyoto Protocol and its relative lack of success in curbing emissions. Despite success among signatories in cutting emissions in their home countries, global emissions have not slowed. In fact, they have increased by 50% since 1990, driven primarily by China and the rest of the developing world. No global warming negotiation since Kyoto has resulted in a similar treaty and a number have been well publicized disappointments.
The failure of Kyoto and the lack of subsequent treaties beg the question of whether or not international climate negotiations can ever be successful. To begin with, there are the technical issues involved: who will cut what? When? And is it fair for developing countries to cut emissions now?
Aside from these, however, an even more basic problem arises: international climate change treaties provide incentive for countries not to participate in the treaty. The reasoning for this is threefold. One, preventing climate change helps every country in the world without exclusion. Two, cutting emissions is costly. And three, if everyone else cuts emissions, a country might be able to continue to emit without increasing the risk of climate change. The danger with this is obvious: if everyone thinks this way then no one will participate, no one will reduce emissions and climate change, with its attendant damages, will continue.
This is a classic example of the economic free rider problem in the context of climate change negotiations. However, a recent game theory approach to climate change negotiations suggests that there may yet be hope for a productive outcome from international climate negotiations.
In this paper by Scott Barrett of Columbia University, Barrett demonstrates that under certain conditions it is optimal, from an individual country’s perspective, to participate in and obey an international treaty calling for each country to reduce emissions and prevent climate change. As he points out, in his model, “a country that withdraws is punished by being moved to abate more as a non-signatory than as a signatory (the opposite of free riding!).”
What are the crucial conditions for this result to occur? Primarily that the damages to each country from climate change are large relative to the cost for each country of reducing emissions. If this is the case then countries who fail to participate in the treaty still have an incentive to reduce at least some of their emissions because doing so costs them less than the damages if climate change were to occur. Given that reducing some emissions is in their interest then, they would be better off by participating in the treaty and the treaty becomes self-reinforcing: no country has an incentive to deviate. However, the truly remarkable result from the paper is that a treaty may work to prevent climate change even if some countries still choose not to participate. Even with the existence of these free riders, if enough of the remaining countries can coordinate then a climate treaty can prevent catastrophic climate change. One possible method for this coordination is explored in a second paper suggesting harmonized, national prices on carbon.
While the history of international climate negotiations has yet to produce the kind of blockbuster treaty instituting a global cap-and-trade system or carbon tax that some environmentalists have hoped for, it appears that there may be hope yet. International negotiations are a long and messy process but these recent theoretical developments demonstrate that they may not be fruitless. As the evidence mounts that climate change is likely to be very damaging in many countries, it should become more likely that countries can come together to coordinate and cooperate to find a solution to slow and eventually stop climate change. Maybe the COP negotiations in Warsaw will be the first of many such productive summits.
Image Credit By: Uwe Hermann (Photo taken by Uwe Hermann) [CC-BY-SA-2.5 (http://creativecommons.org/licenses/by-sa/2.5)]