The Challenge of Cooperation

Editor’s note on our Economics of Climate Change series:

Climate change is happening.  That is science’s unequivocal conclusion.  But what should be done about it is a much more difficult question and the domain, at least in part, of economics.  Determining the costs of inaction and the benefits of action to avoid, mitigate and adapt to climate change is one of the greatest challenges facing the economics profession today.  The results of this cost-benefit calculation will shape the policy that dictates how the world responds to the preeminent policy challenge of our time.  Over the next year we will pay special attention to what economics can tell us about the best ways to respond to climate change. 


 

The 2014 United Nations (UN) Climate Summit took place earlier this week, and it is worth asking, why is there still no meaningful international agreement to mitigate climate change?

UN Secretary General Ban-Ki Moon puts it the following way: “Climate change affects us all. So what’s stopping us joining forces to act on it?” The question is rhetorical; the implied answer is “nothing”. Indeed, the UN chief cultivates a feeling that there should no longer be any hesitation to act collectively. That feeling likely derives from a growing number of successful endeavors to lower emissions (in the form of, e.g., rising renewable energy usage and reduced deforestation) and increasingly acute experience with the damages of climate change (such as massive natural disasters and calving glaciers). But it is a dangerous feeling. The real answer to the Secretary General’s question is not “nothing”. The real answer is old news but ever-relevant: Political incentives.

While the scientific community now agrees that global welfare will surely rise with collective climate action, the world is not governed by a single entity. Our political leaders represent constituencies; they will only support a global agreement if they believe their constituencies will “win” from such a pact. As policymakers, academics, and citizens alike seek to contribute to the climate conversation, it is imperative to target this political-economic impulse, which is the actual bottleneck in negotiations; otherwise all those efforts do nothing to move the world towards agreement.

It is thus worth clarifying the problems that we, as nations at the global negotiating table, are having. It helps to have a taxonomy, which Chris Robert and Richard Zeckhauser (2010) provide. They classify disputes into two broad groups: Positive disagreements, and value disagreements. What do these classifications describe? Well, in the authors’ words, “the positive domain concerns how the world is understood to work…the values domain concerns the bases for judging the outcomes.” The specific sources of disagreement that fall within each class are shown in Table 1 below, reprinted from the authors’ article.

climate change taxonomy

When one applies this taxonomy to international climate policy (as the authors do), the dominant source of disagreement emerges: What we are dealing with is a values problem.

Consider the “positive” elements of climate policy analysis. There is little disagreement over the proper scope to be used. Greenhouse gases (GHGs) mix uniformly in the world’s atmosphere, and the climate system takes a long time to respond; policy analysis should thus consider the whole planet, from the present into the distant future. When it comes to modeling, there is lots of disagreement, but it is largely based on the tradeoff between accuracy and computational tractability, not on how the world actually works. And in the end, impact estimates of climate change and policy to mitigate its effects are consistent in at least one result: Above a couple degrees of warming (and the other changes that come with it), global welfare is significantly reduced. While there are plenty of skeptics who dispute the models and the estimates, most national leaders acknowledge that climate change is damaging the world.

Now consider the values-based elements of climate policy analysis. Imagine that analysts have done their best to predict each country’s (a) contribution to atmospheric carbon stocks and (b) all the different types of damages experienced due to the resulting climate change. Even with this information, political leaders must still make normative judgments about standing (which countries count), criteria, (which damages count), and weights (how much each country and damage counts). Given myopic, nationalistic values, it should not be surprising that global agreement has been hard to come by.

Canonical economic theory rationalizes (but does not justify) these incentives. Our atmosphere is a “global public good” – everyone in the world derives benefits from it, and one person’s use of it does not diminish another’s. This sounds like a good thing, but it actually makes protection of the atmosphere quite difficult. That’s because the cost of any single country’s action to reduce GHG emissions will accrue to that country alone, while the benefits will accrue to the whole world over. So even if the global benefits of the action seem larger than the costs, a political leader that makes nationalistic judgments about standing, criteria, and weighting will probably not find the action worthwhile. Or, as Robert Stavins (2010) puts it: “For any individual political jurisdiction, the direct benefits of taking action will inevitably be less than the costs, producing a free-rider problem.”

Matters are further complicated by the fact that, while GHGs mix uniformly in the atmosphere, their associated damages are not at all uniformly distributed. For example, consider the mortality impacts of global warming. One group of researchers has studied the temperature-mortality relationship in both India and the U.S.: Burgess et al (2013) find quite a large impact of high temperature on mortality in India; Deschenes and Greenstone (2011), on the other hand, find a much smaller impact in the U.S. India’s mortality impacts are surely weighted very highly by Indian politicians, but not by U.S. ones. More generally, the more temperate (and richer) countries of the world would likely bear a significant portion of the costs if the world were to implement an ambitious climate change mitigation plan, while the more tropical (and poorer) countries would reap the majority of the benefits.

All this may seem obvious, but it has always been, and still is, the bottleneck in international negotiations. National leaders are simply not going to agree to cooperative climate action until their own political-economic calculus tells them to do so. All too frequently, climate-action rhetoric seems to sweep this fact under the rug. For those who believe that global cooperation is the ultimate solution, they would do well to acknowledge the “values” problems inherent to climate policy analysis, rather than ignore them.

Image credit Heikenwaelder via Wikimedia Commons.

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