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11-01 Global Climate Games:

Global Climate Games: How Pricing and a Green Fund Foster Cooperation
Forthcoming in Economics of Energy and Environmental Policy, March 2012.
Peter Cramton and Steven Stoft, May 14, 2011 (Revised 12/01/2011)
Global Energy Policy Center Research Paper No. 11-01.



Abstract

The most efficient global climate policy is to price carbon. The Kyoto-Copenhagen agenda was intended to do this with a system of international cap and trade. We view these negotiations as a game in which countries choose their quantity targets based on self interest. Like the analogous public-goods game, in which countries choose their abatement levels, we find this game leads to uncooperative behavior and suggest that this is why the Kyoto approach inevitably failed.
        By contrast, a game in which all countries vote for a global quantity target or a global price target can lead to a highly cooperative choice of target. However, the assignment of responsibilities for a global quantity target stymies implementation of a global cap. The global-price-target game largely overcomes this barrier, because a uniform global price provides a focal point for cooperation. However low-emission countries apparently prefer a much lower global-price than more prosperous countries unless a Green Fund is implemented. A game that couples such a fund to the global price target can largely overcome this barrier to cooperation. We describe such a game along with its equilibrium outcome, which promises to be inexpensive and cooperative.


Keywords: climate change, cap and trade, green fund, international environmental agreement

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Steven Stoft,
Jun 3, 2011, 9:56 PM
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Steven Stoft,
Dec 13, 2011, 7:23 PM
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Steven Stoft,
Jun 4, 2011, 9:48 AM
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