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A Good Opening: The Key to Make the Most of Unilateral Climate Action

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  • Bosetti, Valentina
  • De Cian, Enrica
Abstract
In this paper we argue that when a subgroup of countries cooperate on emission reduction, the optimal response of non-signatory countries reflects the interaction between three potentially opposing factors, the incentive to free-ride on the benefits of cooperation, the incentive to expand the demand of fossil fuels, and the incentive to adopt cleaner technologies introduced by the coalition. Using an Integrated Assessment Model with a game theoretic structure we find that cost-benefit considerations would lead OECD countries to undertake a moderate, but increasing abatement effort (in line with the pledges subscribed in Copenhagen). Even if emission reductions are moderate, OECD countries find it optimal to allocate part of their resources to energy R&D and investments in cleaner technologies. International spillovers of knowledge and technology diffusion then lead to the deployment of these technologies in non-signatory countries as well, reducing their emissions. When the OECD group follows more ambitious targets, such as 2050 emissions that are 50% below 2005 levels, the benefits of technology externalities do not compensate the incentives deriving from the lower fossil fuels prices. This suggests that, when choosing their unilateral climate objective, cooperating countries should take into account the possibility to induce a virtuous behaviour in non-signatory countries. By looking at a two-phase negotiation set-up, we find that free-riding incentives spurred by more ambitious targets can be mitigated by means of credible commitments for developing countries in the second phase, as they would reduce lock-in in carbon intensive technologies.

Suggested Citation

  • Bosetti, Valentina & De Cian, Enrica, 2011. "A Good Opening: The Key to Make the Most of Unilateral Climate Action," Climate Change and Sustainable Development 119104, Fondazione Eni Enrico Mattei (FEEM).
    • Handle: RePEc:ags:feemcl:119104
    DOI: 10.22004/ag.econ.119104
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    Cited by:

    1. Enrica De Cian & Ilkka Keppo & Johannes Bollen & Samuel Carrara & Hannah Förster & Michael Hübler & Amit Kanudia & Sergey Paltsev & Ronald D. Sands & Katja Schumacher, 2013. "European-Led Climate Policy Versus Global Mitigation Action: Implications On Trade, Technology, And Energy," Climate Change Economics (CCE), World Scientific Publishing Co. Pte. Ltd., vol. 4(supp0), pages 1-28.
    2. Enrica De Cian & Fabio Sferra & Massimo Tavoni, 2013. "The Influence of Economic Growth, Population, and Fossil Fuel Scarcity on Energy Investments," Working Papers 2013.59, Fondazione Eni Enrico Mattei.
    3. Heike Auerswald & Kai A. Konrad & Marcel Thum, 2018. "Adaptation, mitigation and risk-taking in climate policy," Journal of Economics, Springer, vol. 124(3), pages 269-287, July.
    4. Francesca Sanna-Randaccio & Roberta Sestini & Ornella Tarola, 2017. "Unilateral Climate Policy and Foreign Direct Investment with Firm and Country Heterogeneity," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 67(2), pages 379-401, June.
    5. Lessmann, Kai & Kornek, Ulrike & Dellink, Rob & Emmerling, Johannes & Eyckmans, Johan & Nagashima, Miyuki & Weikard, Hans-Peter & Yang, Zili, 2014. "The Stability and Effectiveness of Climate Coalitions: A Comparative Analysis of Multiple Integrated Assessment Models," Climate Change and Sustainable Development 163598, Fondazione Eni Enrico Mattei (FEEM).
    6. Carsten Helm & Franz Wirl, 2016. "Climate Policies with Private Information: The Case for Unilateral Action," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 3(4), pages 893-916.
    7. Bosetti, Valentina & Carraro, Carlo & De Cian, Enrica & Massetti, Emanuele & Tavoni, Massimo, 2013. "Incentives and stability of international climate coalitions: An integrated assessment," Energy Policy, Elsevier, vol. 55(C), pages 44-56.
    8. Bosello, Francesco & Davide, Marinella & Alloisio, Isabella, 2016. "Economic Implications of EU Mitigation Policies: Domestic and International Effects," EIA: Climate Change: Economic Impacts and Adaptation 234938, Fondazione Eni Enrico Mattei (FEEM).
    9. Kai Lessmann & Ulrike Kornek & Valentina Bosetti & Rob Dellink & Johannes Emmerling & Johan Eyckmans & Miyuki Nagashima & Hans-Peter Weikard & Zili Yang, 2015. "The Stability and Effectiveness of Climate Coalitions," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 62(4), pages 811-836, December.
    10. Arroyo-Currás, Tabaré & Bauer, Nico & Kriegler, Elmar & Schwanitz, Valeria Jana & Luderer, Gunnar & Aboumahboub, Tino & Giannousakis, Anastasis & Hilaire, Jérôme, 2015. "Carbon leakage in a fragmented climate regime: The dynamic response of global energy markets," Technological Forecasting and Social Change, Elsevier, vol. 90(PA), pages 192-203.
    11. Marcucci, Adriana & Turton, Hal, 2015. "Induced technological change in moderate and fragmented climate change mitigation regimes," Technological Forecasting and Social Change, Elsevier, vol. 90(PA), pages 230-242.
    12. Adolfo Maza & José Villaverde & María Hierro, 2015. "Non- $$\hbox {CO}_2$$ CO 2 Generating Energy Shares in the World: Cross-Country Differences and Polarization," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 61(3), pages 319-343, July.
    13. Gregor Schwerhoff & Ulrike Kornek & Kai Lessmann & Michael Pahle, 2018. "Leadership In Climate Change Mitigation: Consequences And Incentives," Journal of Economic Surveys, Wiley Blackwell, vol. 32(2), pages 491-517, April.
    14. Marcucci, Adriana & Fragkos, Panagiotis, 2015. "Drivers of regional decarbonization through 2100: A multi-model decomposition analysis," Energy Economics, Elsevier, vol. 51(C), pages 111-124.

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    More about this item

    Keywords

    Environmental Economics and Policy;

    JEL classification:

    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q55 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Technological Innovation
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games

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