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A robust meta-game for climate negotiations

Author

Listed:
  • Frédéric Babonneau
  • Alain Haurie
  • Marc Vielle
Abstract
This paper deals with an application of the robust equilibrium concept in game theory to the assessment of the possible international agreement on climate that could be achieved in the conference of the parties negotiations organized by the UNFCCC. It is shown in particular that an acceptable, self-enforcing agreement could be obtained to maintain the temperature rise below 2 $$\,^\circ $$ ∘ C at the end of twenty-first century, with a balanced welfare loss among 11 groups of countries representing the parties limited to 1.8 % of their total discounted household consumption. To design this possible agreement we use a reduced order meta game where the players are the 11 groups of countries considered as the parties in negotiation, the strategies are the supply of emission quotas on an international emissions trading system and the payoffs are the net gains obtained from the emissions, trading and changes in the terms of trade minus the damage cost associated with the cumulative emissions during the 2010–2050 period. To identify the abatement costs that serve in the calculation of the payoffs and the gains due changes of terms of trade we use a statistical emulation of the GEMINI-E3 macroeconomic model. To obtain surrogate damage cost functions we introduce a coupled constraint in the game, imposing a limit to the cumulative emissions of all parties, which we call the global safety emissions budget. The multipliers intervening in the equilibrium necessary conditions are then interpreted as marginal damage costs. Games with coupled constraints admit a manifold of normalized equilibria and we show that they correspond to equilibria in games where each player is constrained by a given share of the safety emissions budget. Among all the normalized equilibria we look for the one which minimizes the maximum welfare loss, expressed in percentage of household consumption, among the 11 groups of countries. To take into account the uncertainty created by the statistical emulation approach and the approximate description of the emissions trading system we introduce robustness in the equilibrium computation. Copyright Springer-Verlag Berlin Heidelberg 2013

Suggested Citation

  • Frédéric Babonneau & Alain Haurie & Marc Vielle, 2013. "A robust meta-game for climate negotiations," Computational Management Science, Springer, vol. 10(4), pages 299-329, December.
    • Handle: RePEc:spr:comgts:v:10:y:2013:i:4:p:299-329
    DOI: 10.1007/s10287-013-0188-0
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    References listed on IDEAS

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    1. O. Bahn & A. Haurie, 2008. "A Class Of Games With Coupled Constraints To Model International Ghg Emission Agreements," International Game Theory Review (IGTR), World Scientific Publishing Co. Pte. Ltd., vol. 10(04), pages 337-362.
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    11. Laurent Drouet & Alain Haurie & Francesco Moresino & Jean-Philippe Vial & Marc Vielle & Laurent Viguier, 2008. "An oracle based method to compute a coupled equilibrium in a model of international climate policy," Computational Management Science, Springer, vol. 5(1), pages 119-140, February.
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    Cited by:

    1. Bondarev, Anton & Krysiak, Frank C., 2018. "Adaptation to catastrophic events with two layers uncertainty: Central planner perspective," Working papers 2018/10, Faculty of Business and Economics - University of Basel.
    2. Frédéric Babonneau & Alain Haurie & Marc Vielle, 2016. "Assessment of balanced burden-sharing in the 2050 EU climate/energy roadmap: a metamodeling approach," Climatic Change, Springer, vol. 134(4), pages 505-519, February.
    3. Anton Bondarev, 2019. "Robust Policy Schemes for Differential R&D Games with Asymmetric Information," Dynamic Games and Applications, Springer, vol. 9(2), pages 391-415, June.
    4. Bondarev, Anton, 2018. "Robust policy schemes for R&D games with asymmetric information," Working papers 2018/01, Faculty of Business and Economics - University of Basel.
    5. Bondarev, Anton & Krysiak, Frank C., 2017. "Temporary and permanent technology lock-ins in the quality-differentiated Bertrand competition," Working papers 2017/09, Faculty of Business and Economics - University of Basel.
    6. O. Bahn & A. Haurie, 2016. "A Cost-Effectiveness Differential Game Model for Climate Agreements," Dynamic Games and Applications, Springer, vol. 6(1), pages 1-19, March.
    7. Babonneau, Frédéric & Haurie, Alain & Vielle, Marc, 2018. "Welfare implications of EU Effort Sharing Decision and possible impact of a hard Brexit," Energy Economics, Elsevier, vol. 74(C), pages 470-489.
    8. Anton Bondarev & Frank C. Krysiak, 2017. "Robust policy schemes for R&D games with asymmetric information," Working papers 2017/14, Faculty of Business and Economics - University of Basel.

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