Monday, December 22, 2008

NEP-GTH: Climate Agreements and Game Theory

Okay, time to clean out the inbox of the thousands of New Economics Papers that have piled up over term.

Going through game theory first, as the title indicates. I have never been exposed formally to an ounce of game theory (wait for next term), so I can't understand most of the abstracts. The only particularly interesting thing that cropped up was a series of papers on international climate negotiations. Highlights, but I don't suggest you actually follow the links, I only skimmed the papers.

1. The presence of ancillary country-specific benefits from tackling climate change will have a tendency to lead towards more overall climate action, though less international cooperation. By ancillary benefits, I mean things like reduced air pollution, energy independence and rural employment. Unfortunately, there is little to no consensus on the magnitude of these benefits, so I can't tell you how much we should care about a post-Kyoto international deal.

2. The EU doesn't have much collective bargaining power at climate negotiations. If they unilaterally committed to a 20% reduction, other countries would not significantly free-ride off their efforts. Further, if they proposed 20%, but would do 30% if other countries managed a 20% reduction, this would not induce significant additional participation in climate accords. The authors spend a lot of time talking about how 'certain allocations of carbon credits/permits/etc could induce participation', but that would simply be bribery on a massive scale, which isn't a surprising result.

3. Tackling climate change without developing countries is very inefficient and very difficult. If we bribe them by letting them sell reductions from the "business-as-usual" case, they start cutting CO2.

Reading this literature, it's really easy to condense: Countries are not going to cut their emissions much unless they're bribed to do so. This sentiment is prevalent in all of these papers, and covered up with superb language, for example:
Our estimate of the additional cost imposed by delayed NA1[developing]-country participation [in a climate deal] is between 10 and 25 trillion USD. This negative effect wanes when non-participatory 18 countries are allowed to trade emission reductions from their BaU [business-as-usual] emissions.

Translation: If we give other countries lots of money for doing nothing, since BAU already includes population and economic growth, but nothing in the way of improvements of energy efficiency - consider the incandescent lightbulbs of today versus those of a century ago - this implies countries will almost always beat BAU. The proposal would let them sell these "emissions reductions" on the international market to developed countries who have committed to binding targets. So it's just a transfer from rich to poorer, albeit one that makes the world as a whole considerably better off under a cost-benefit criterion (as opposed to a utility criterion). This may concur with your distributional agenda for the world as a whole, but it's still just a bribe.

Note also that the people who write papers on this subject are also environmentalists and thus tend to use upper estimates of the costs of inaction. Full disclosure: I believe wholeheartedly that anthropogenic climate change is occuring.

POSTSCRIPT: These are all typed in MSWord or similiar, and it really bothers me. Looks so poor.

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