Renegotiations in the Greenhouse
- 366 Downloads
International climate policies are being shaped in a process of ongoing negotiations. This paper develops a sequential game framework to explore the stability of international climate agreements allowing for multiple renegotiations. We analyse how the incentives to reach an international climate agreement in the first period will be impacted by the prospect of further negotiations in later periods and by the punishment options related to renegotiations. For this purpose we introduce a dynamic model of coalition formation with twelve world regions that captures the key features of the climate-economy impacts of greenhouse gas emissions. For a model with one round of renegotiations we find that a coalition of China and the United States is the unique renegotiation proof equilibrium. In a game with more frequent renegotiations we find that the possibility to punish defecting players helps to stabilise larger coalitions in early stages of the game. Consequently, several renegotiation proof equilibria emerge that outperform the coalition of China and USA in terms of abatement levels and global payoff. The Grand Coalition, however, is unstable.
KeywordsInternational climate agreements Self-enforcing international environmental agreements STACO model Coalition formation with renegotiation
JEL ClassificationC73 D74 Q54
An earlier version of this paper was presented at the Third World Congress of Environmental and Resource Economists, July 3-6, 2006, Kyoto, Japan. We gratefully acknowledge the support of our collaborators in the STACO project.
This article is distributed under the terms of the Creative Commons Attribution Noncommercial License which permits any noncommercial use, distribution, and reproduction in any medium, provided the original author(s) and source are credited.
- Altamirano-Cabrera J-C, Finus M (2006) Permit trading and stability of international climate agreements. J Appl Econ 9: 19–47Google Scholar
- Barrett S (1994) Self-enforcing international environmental agreements. Oxf Econ Pap 46: 878–894Google Scholar
- Botteon M, Carraro C (1997) Burden-sharing and coalition stability in environmental negotiations with asymmetric countries. In: Carraro C (eds) International environmental negotiations: strategic policy issues. Edward Elgar, Cheltenham, pp 26–55Google Scholar
- Dellink RB, Altamirano-Cabrera J-C, Finus M, van Ierland EC, Ruijs A, Weikard H-P (2004) Empirical background paper of the STACO model, mimeo, Wageningen UniversityGoogle Scholar
- Ellerman AD, Decaux A (1998) Analysis of post-Kyoto CO2 emissions trading using marginal abatement curves. Joint program on the science and policy of global change Report 40, MIT, CambridgeGoogle Scholar
- Fankhauser S (1995) Valuing climate change. Earthscan, LondonGoogle Scholar
- Hoel M (1992) International environmental conventions: the case of uniform reductions of emissions. Environ Resour Econ 2: 141–159Google Scholar
- Na S, Shin HS (1998) International environmental agreements under uncertainty. Oxf Econ Pap 50: 173–185Google Scholar
- Nordhaus WD (1994) Managing the global commons: the economics of climate change. MIT Press, Cambridge, MAGoogle Scholar
- Reilly J-M (2005) Emission paths in the MIT–EPPA model, personal communicationGoogle Scholar
- Rubio SJ, Ulph A (2002) A simple dynamic model of international environmental agreements with a stock pollutant. Discussion paper in economics and econometrics 0209, Department of Economics, University of SouthamptonGoogle Scholar
- Tol RSJ (1997) A decision-analytic treatise of the enhanced greenhouse effect. Ph.D. thesis, Vrije Universiteit, AmsterdamGoogle Scholar
- Weikard H-P, Dellink RB (2008) Sticks and carrots for the design of climate agreements with renegotiations. FEEM working paper 26.2008. Venice, ItlayGoogle Scholar