Global climate change mitigation: Strategic incentives

Author name: 
Perdana S
Tyers R

Global agreement to reduce carbon emissions has been weakened by slowing growth and burden-sharing conflicts. This paper examines strategic interaction amongst regions in the choice to implement carbon taxation. Benefits from climate change mitigation are constructed via a meta-analysis of existing studies that link carbon concentration with average surface temperature and region-specific measures of economic welfare. Implementation costs are then derived by modeling national and global economic performance. Multiplayer, normal form games with payoffs derived by netting costs from shared benefits are then constructed, revealing that the US and China are net gainers in net present value terms from unilateral implementation. Europe’s choice is marginal but sensitive to the temperature scenario. The dominant strategy for all other countries is to free ride. For the three large economies, there are net gains that are bolstered by universal adoption. In total, the compensatory side payments that would induce universal adoption are sufficient and affordable. The net gains to all regions do not begin to appear for at least two decades, rendering commitment to abatement politically difficult.

Publication file: 

Updated:  31 August 2017/Responsible Officer:  Crawford Engagement/Page Contact:  CAMA admin