The threat of climate catastrophes has been shown to radically change optimal climate policy and prospects for international climate agreements. We characterize the strategic behavior in emissions mitigation and agreement participation with a potential climate catastrophe happening at a temperature threshold. Players are heterogeneous in a conceptual and two numerical models. We confirm that thresholds can induce large, stable coalitions. The relationship between the location of the threshold and the potential for cooperation is non-linear, with the highest potential for cooperation at intermediate temperature thresholds located between 2.5 and 3 degrees of global warming. We find that some regions such as Europe, the USA and China are often pivotal to keeping the threshold because the rest of the world abandons ambitious mitigation and the threshold is crossed without their participation. As a result, their incentives to cooperate can be amplified at the threshold. This behavior critically depends on the characteristics of the threshold as well as the numerical model structure. Conversely, non-pivotal regions are more likely to free-ride as the threshold inverts the strategic response of the remaining coalition. Moreover, we find that our results depend on which equilibrium concepts is applied to analyze coalition formation as well as the introduction of uncertainty about the threshold.
This is a preview of subscription content, log in to check access.
Buy single article
Instant unlimited access to the full article PDF.
Price includes VAT for USA
Subscribe to journal
Immediate online access to all issues from 2019. Subscription will auto renew annually.
This is the net price. Taxes to be calculated in checkout.
Note that in his analysis of cooperation and catastrophic damages, Barrett (2013) makes a different assumption about the behavior of the remaining coalition: the coalition acts as a Stackelberg leader in emission choices, anticipating the emission choice of the defecting player. In his model, a leaving player will actually reduce his emissions, by force of the coalition.
We thank an anonymous reviewer for pointing us to the similarities in strategic behavior at the threshold of symmetric players facing uncertainty and heterogeneous players as in this study.
WITCH implements the coalitional optimum through maximization of the utilitarian sum of individual utility per region. MICA computes the coalitional optimum by solving a competitive equilibrium on international commodity markets with full internalization of the climate change externality.
This assumes that the defector falls back to its baseline emissions. In principle, there are many equilibria in emission strategies here, but characterizing them analytically is beyond the scope of this paper.
Equivalent to the threshold in terms of cumulative emissions ET of the previous section, given that temperature increase and cumulative emissions have an almost linear relationship (Matthews et al. 2009).
For rigorous tests of farsighted or γ-core stability a full set of all possible coalitions is needed but is not available as the additional computational effort puts this beyond the scope of this study. A discussion of testing core stability in non-transferable utility models is found in Kornek et al. (2014).
This uncertainty about threshold damages is conceptually equivalent to the following uncertainty about the threshold location. A threshold with damage d = 0.04 materializes at the temperature TS = 2.5 (and TS = 3.0 respectively) or at an infinitely large temperature, with 50% probability each. See Barrett (2013) for a discussion about the different implications of damage vs. threshold uncertainty.
Barrett, S. (1994). Self-enforcing international environmental agreements. Oxford Economic Papers, 46, 878–94.
Barrett, S. (2003). Environment and statecraft: The strategy of environmental treaty-making: The strategy of environmental treaty-making. Oxford: Oxford University Press.
Barrett, S. (2013). Climate treaties and approaching catastrophes. Journal of Environmental Economics and Management, 66, 235–250.
Barrett, S., & Dannenberg, A. (2012). Climate negotiations under scientific uncertainty. Proceedings of the National Academy of Sciences, 109, 17372–17376.
Barro, R.J., & Jin, T. (2011). On the size distribution of macroeconomic disasters. Econometrica, 79, 1567–1589.
Benchekroun, H., & Van Long, N. (2012). Collaborative environmental management: A review of the literature. International Game Theory Review, 14, 1240002.
Bosetti, V., Carraro, C., Galeotti, M., Massetti, E., Tavoni, M. (2006). WITCH A world induced technical change hybrid model. The Energy Journal, 27, 13–37.
Brozović, N., & Schlenker, W. (2011). Optimal management of an ecosystem with an unknown threshold. Ecological Economics, 70(4), 627–40.
Cai, Y., Lenton, T.M., Lontzek, T.S. (2016). Risk of multiple interacting tipping points should encourage rapid CO2 emission reduction. Nature Climate Change, 6, 520–525.
Chander, P. (2007). The Gamma-Core and coalition formation. International Journal of Game Theory, 35(4), 539–56.
Chander, P., & Tulkens, H. (1995). A core-theoretic solution for the design of cooperative agreements on transfrontier pollution. International Tax and Public Finance, 2, 279–293.
Chander, P., & Tulkens, H. (1997). The core of an economy with multilateral environmental externalities. International Journal of Game Theory, 26(3), 379–401.
Diekert, F.K. (2017). Threatening thresholds? the effect of disastrous regime shifts on the non-cooperative use of environmental goods and services. Journal of Public Economics, 147, 30–49.
D’Aspremont, C., & Gabszewicz, J.-J. (1986). On the stability of collusion. In: New Developments in the Analysis of Market Structures. Macmillan, New York, Ch. On the stability of collusion, pp. 243–264.
Emmerling, J., Drouet, L., Reis, L.A., Bevione, M., Berger, L., Bosetti, V., Carrara, S., Cian, E.D., D’Aertrycke, G.D.M., Longden, T., Malpede, M., Marangoni, G., Sferra, F., Tavoni, M., Witajewski-Baltvilks, J., Havlik, P. (2016). The WITCH 2016 model - documentation and implementation of the shared socioeconomic pathways, FEEM Working Paper No. 2016.42, Fondazione Eni Enrico Mattei.
Finus, M. (2003). New developments in coalition theory: An application to the case of global pollution. In Marsiliani, L., Rauscher, M., Withagen, C. (Eds.) Environmental policy in an international perspective (pp. 19–49). Dordrecht, Holland: Kluwer Academic Publishers.
Finus, M. (2008). Game theoretic research on the design of international environmental agreements: Insights, critical remarks, and future challenges. International Review of Environmental and Resource Economics, 2, 29–67.
Heutel, G., Moreno-Cruz, J., Shayegh, S. (2016). Climate tipping points and solar geoengineering. Journal of Economic Behavior & Organization.
Hoel, M. (1992). International environment conventions: The case of uniform reductions of emissions. Environmental and Resource Economics, 2, 141–159.
Iris, D., & Tavoni, A. (2016). Tipping points and loss aversion in international environmental agreements, FEEM Working Paper No. 25.2016, Fondazione Eni Enrico Mattei.
Karp, L., & Simon, L. (2013). Participation games and international environmental agreements: A non-parametric model. Journal of Environmental Economics and Management, 65, 326–344.
Kornek, U., Steckel, J.C., Lessmann, K., Edenhofer, E. (2017). The climate rent curse: New challenges for burden sharing. International Environmental Agreements, 17(6), 855–882.
Kornek, U., Lessmann, K., Tulkens, H. (2014). Transferable and non transferable utility implementation of coalitional stability in integrated assessment models. CORE working paper 2014/35.
Kriegler, E., Hall, J.W., Held, H., Dawson, R., Schellnhuber, H.J. (2009). Imprecise probability assessment of tipping points in the climate system. PNAS, 106, 5041–5046.
Lemoine, D., & Traeger, C.P. (2016). Ambiguous tipping points. Journal of Economic Behavior & Organization, 132, 5–18.
Lenton, T.M., Held, H., Kriegler, E., Hall, J.W., Lucht, W., Rahmstorf, S., Schellnhuber, H.J. (2008). Tipping elements in the Earth’s climate system. Proceedings of the National Academy of Sciences, 105(6), 1786–1793.
Lessmann, K., Kornek, U., Bosetti, V., Dellink, R., Emmerling, J., Eyckmans, J., Nagashima, M., Weikard, H.-P., Yang, Z. (2015). The stability and effectiveness of climate coalitions. Environmental and Resource Economics, 62, 811–836.
Lessmann, K., Marschinski, R., Edenhofer, O. (2009). The effects of tariffs on coalition formation in a dynamic global warming game. Economic Modelling, 26, 641–649.
Lontzek, T.S., Cai, Y., Judd, K.L., Lenton, T.M. (2015). Stochastic integrated assessment of climate tipping points indicates the need for strict climate policy. Nature Climate Change, 5, 441–444.
Mäler, K.-G., Xepapadeas, A., de Zeeuw, A. (2003). The economics of shallow lakes. Environmental and Resource Economics, 26(4), 603–624.
Matthews, H.D., Gillett, N.P., Stott, P.A., Zickfeld, K. (2009). The proportionality of global warming to cumulative carbon emissions. Nature, 459, 829–32.
Miller, S., & Nkuiya, B. (2016). Coalition formation in fisheries with potential regime shift. Journal of Environmental Economics and Management, 79, 189–207.
Muradian, R. (2001). Ecological thresholds: A survey. Ecological Economics, 38(1), 7–24.
Myerson, R.B. (1991). Game theory: Analysis of conflict. Cambridge: Harvard University Press.
Nagashima, M., Dellink, R., van Ierland, E., Weikard, H.-P. (2009). Stability of international climate coalitions - a comparison of transfer schemes. Ecological Economics, 68(5), 1476–87.
Nordhaus, W.D. (1994). Managing the global commons: The economics of climate change. Cambridge: MIT Press.
Nordhaus, W.D., & Yang, Z. (1996). A regional dynamic general-equilibrium model of alternative climate-change strategies. The American Economic Review:741–765.
Polasky, S., de Zeeuw, A., Wagener, F. (2011). Optimal management with potential regime shifts. Journal of Environmental Economics and Management, 62 (2), 229–40.
Rogelj, J., Chen, C., Nabel, J., Macey, K., Hare, W., Schaeffer, M., Markmann, K., Höhne, N., Andersen, K. K., Meinshausen, M. (2010). Analysis of the Copenhagen Accord pledges and its global climatic impacts - a snapshot of dissonant ambitions. Environmental Research Letters, 5, 034013.
Rogelj, J., den Elzen, M., Höhne, N., Fransen, T., Fekete, H., Winkler, H., Schaeffer, R., Sha, F., Riahi, K., Meinshausen, M. (2016). Paris agreement climate proposals need a boost to keep warming well below 2 ∘C. Nature, 534, 631–39.
Sakamoto, H. (2014). Dynamic resource management under the risk of regime shifts. Journal of Environmental Economics and Management, 68(1), 1–19.
Schmidt, R.C. (2017). Dynamic cooperation with tipping points in the climate system. Oxford Economic Papers, 69(2), 388–409.
Tsur, Y., & Zemel, A. (2016). Policy tradeoffs under risk of abrupt climate change. Journal of Economic Behavior & Organization, 132, 46–55.
Weikard, H.-P. (2009). Cartel stability under an optimal sharing rule. The Manchester School, 77, 575–593.
de Zeeuw, A. (2008). Dynamic effects on the stability of international environmental agreements. Journal of Environmental Economics and Management, 55(2), 163–74.
We thank participants at the FEEM Workshop on Public Goods 2014, the 20th Coalition Theory Network Workshop in Venice, the 7th Atlantic Workshop on Energy and Environmental Economics in Atoxa, two anonymous referees, Alessandro Tavoni, Henry Tulkens, and Philippe Colo for very helpful comments. VB would like to acknowledge financial support from the ERC grant agreement n∘ 336703 (RISICO). KL gratefully acknowledges financial support by the Federal Ministry of Education and Research (BMBF) program “Global Change 5 + 1” as part of the grant agreement 01LN1703A (FINFAIL). An earlier version of this paper has been circulating under the title “The catastrophe smile - The effect of climate thresholds on coalition formation”.
Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.
Electronic supplementary material
Below is the link to the electronic supplementary material.
About this article
Cite this article
Emmerling, J., Kornek, U., Bosetti, V. et al. Climate thresholds and heterogeneous regions: Implications for coalition formation. Rev Int Organ (2020). https://doi.org/10.1007/s11558-019-09370-0
- Tipping points
- International environmental agreements
- Climate change