Coalition-building for CO2 pricing beneficial for egoistic countries

A new study, co-authored by the MCC, finds that participation in carbon pricing systems pays off even for countries that act egoistically—if climate pioneers go ahead.

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Even countries that tend to act in an egoistic way have in the long run an incentive to participate in international climate stabilization pathways and couple CO2 pricing systems. This is the result of a new game-theoretical study co-authored by the Mercator research Institute on Global Commons and Climate Change (MCC) and the Potsdam Institute for Climate Impact Research (PIK). However, these countries might only do this after pioneer coalitions for pricing greenhouse gas emissions have made the first steps. The new study, which has been published in “Nature Climate Change”, adds evidence to why forming climate action coalitions actually makes sense.

If climate pioneers go ahead, the egoistic countries temporarily enjoy the benefits of avoided climate change without paying for it, but in the longer term can join the pioneers and link to their already established models of CO2 pricing. Forming larger and larger coalitions reaps additional benefits of avoided damages from climate change. These benefits, even though unequally distributed across the coalition members, can be distributed via financial transfers. This makes it attractive to join even for egoistic countries.

“Climate change mitigation is a public good – which makes it so difficult to achieve,” says Jobst Heitzig from PIK, lead-author of the study. “The temptation to free-ride on the efforts of others has often been predicted to make countries reluctant to join coalitions. But our numerical experiments show that this may only be a temporary effect. Collaborating can eventually be attractive enough to make global climate protection likely.” The study is the first to employ a game-theoretic model that is both dynamic and assumes at least some degree of farsightedness of the players. “This might seem like a bold assumption, but we think that many policy-makers around the world indeed do try to integrate long-term developments into their decisions.”

“As for the pioneer coalitions for CO2 pricing, they’re not a bold assumption – they already emerge” says Ulrike Kornek from the MCC. “In the context of the European Union, France recently started a discussion on implementing a minimum carbon price together with a coalition of like-minded European countries such as, hopefully, Germany. This is closely observed by China, which is building up an emissions trading system of its own. In the Americas, California – the sixth biggest economy in the world – has a minimum carbon price and has agreed to link its climate policy with Ontario and Quebec. So, this is spreading – and increasing current carbon prices is the next step to adhere to the temperature goals of the Paris agreement.”


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