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01-04-2014

Exploring the nature of inter-country interactions in the process of ratifying international environmental agreements: the case of the Kyoto Protocol

Author: Alexandre Sauquet

Published in: Public Choice | Issue 1-2/2014

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Abstract

International environmental agreements require negotiation and cooperation among countries. This paper attempts to analyze the presence and nature of inter-country interactions in the process of ratifying such agreements. We develop a theoretical argument based on the notions of strategic substitutability and strategic complementarity and study the interactions among three different peer types: geographic neighbors, trading partners and green investment projects partners (in our case, clean development mechanism projects partners). We test for the presence of interactions by taking into account a temporal dimension, which constitutes a methodological contribution. To this end, we introduce spatially lagged endogenous variables into a parametric survival model and apply the proposed framework to the Kyoto Protocol ratification process. Our data sample covers 164 countries for the period 1998 to 2009. We find evidence that, while countries’ ratification decisions are basically strategic substitutes, they become strategic complements once we focus on the ratification decisions of specific peers.

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The green development projects considered in this paper are the projects contemplated by the clean development mechanism.

Beron et al. (2003) used several matrices to take interactions into account. However, they run a cross-sectional analysis. In addition, the focus of their study was the Montreal Protocol, and we are not convinced that participation in this treaty can be analyzed as cooperative behavior. Indeed, Murdoch and Sandler (1997) explain that the use of CFC substitutes was probably economically profitable.

Among many other newspaper articles, see Osborn (2001) and Rohter and Revkin (2004).

Indeed, we are attempting to understand why countries participate in the KP, not to explain their level of participation, which would have been measured by the decrease in greenhouse gas emissions pledged by the countries. For a study of the level of participation in IEAs, see, for example, Bratberg et al. (2005). Note also that the nature of interactions can be different at the ratification stage and at the participation level stage of an IEA, as shown by Murdoch et al. (2003).

The country does not ignore the participation of other countries, but does not consider that the ratification decision has an impact on other domains, such as trade, as developed further in the paper.

LRTAP stands for Long Range Transboundary Air Pollution.

According to Barrett (2011:1866), leakages occur because the reduction in emissions from some countries will lead to a change in comparative advantages, which will cause other countries to increase their emissions. He defines the leakage rate as follows: “Suppose there are N countries, and that n of these take actions to limit their emissions. The reduction in emissions by the n countries is x (measured in tons), but these actions cause emissions in the N−n other countries to increase by X. The leakage rate is then X/x.”

In the end, the parties reached a compromise. New Zealand ratified on the 19th of December 2002 while the new parliament was elected on the 27th of July. However, as stated on the New Zealand Ministry for the Environment’s official website, “New Zealand’s commitment under the KP is to return emissions to 1990 levels on average over the commitment period (2008–2012).” It therefore amounts to a ratification but only with a commitment to keep emissions at 1990 levels, whereas most other ratifying countries committed to reduce their emissions more dramatically.

Note that strategic complementarity may also occur in cutting greenhouse gas emissions, as shown by Copeland and Taylor (2005).

This mechanism works by the following principle. A developed country that ratifies the KP gets registered as an Annex 1 country and consequently receives emission reduction targets. To meet these targets, a country can decrease its carbon emissions on its own territory or resort to a flexibility mechanism, such as the CDM. The main rules governing this mechanism were defined at the seventh Conference of the Parties to the United Nations Framework Convention on Climate Change (UNFCCC) held in Marrakesh in 2001 (Lecocq and Ambrosi 2007). The principle is to finance an emissions-reduction project in a developing country, which can lead to the creation of saleable certified emission reduction credits (each credit is equivalent to one metric ton of CO₂).

See Dechezleprêtre et al. (2008, 2009) for a finer-grained study of the characteristics of these technological transfers.

The CEPII is the French Center for Research and Studies on the World Economy. Their distance database can be found at: http://www.cepii.fr/anglaisgraph/bdd/distances.htm.

We use export data from the UN Comtrade database: X _ij is the mean of the available bilateral exports for the sample period.

UNEP-Risø is the United Nations Environment Program research center located in Risø, Denmark.

The projects are not registered in the CDM pipeline before ratification by the developed country. However, projects can be in the preparation phase, and we assume that a developing country is able to identify the source of funding. Therefore we consider the number of CDM projects to be a proper weighting factor.

http://www.freedomhouse.org/.

Technically, we are dealing with single spell data (only one ratification per country), and with a right-censored sample (some countries had not yet ratified the KP at the end of the studied period).

See Lancaster (1992), Box-Steffensmeier and Jones (2004), Kleinbaum and Klein (2005) and Cleves et al. (2010) for good introductions to duration models, which the literature variously terms as transition data, survival models or event-history analysis.

Two factors can explain the 2002 peak in ratifications. First, the European Union ratified the KP on May 31 2002 (meaning that 15 countries ratified simultaneously). Second, the Marrakesh Accords were adopted in 2001. During these accords, the member countries allowed the implementation of the CDM, following which we observed the ratification of countries that now are major CDM hosts, such as Brazil (August 23 2002), India (August 26 2002) and China (August 28 2002).

Note that the latter is the counterpart of the error term in standard regression. These two terms will be used interchangeably throughout the rest of the paper.

The Akaike information criterion is defined as AIC=−2lnL+2(α+β), where L is the log-likelihood of the estimation, α is the number of explanatory variables and β is the number of specific distributions.

The inverse-Gaussian distribution is used for the frailty parameters, selected for its mathematical tractability. The frailty is assumed to have mean 1 and variance θ for model identifiability.

To give perspective, an example of the interpretation of the magnitude of the coefficient in traditional survival models is given.

The online Appendices can be accessed at: supplementary_material.

To give perspective, in traditional survival models, the magnitude of the coefficient would be read as follows: an increase in the democracy level by 1—from “Non-Free” to “Partly-Free” or from “Partly-Free” to “Free”—is associated with a 55 % increase in the hazard (see Cleves et al. 2010:131 & 234). However, as stated in Sect. 3.4, coefficients in spatial models cannot be interpreted directly.

Our variable allows us only to distinguish between autocratic and democratic countries. As mentioned, see the work of Fredriksson and Wollscheid (2007) for an interesting development of the “environment—political regime” relationship.

An additional robustness check implemented but not reported is a change in the definition of ratification year. Ratification of the KP is officially validated on a specific date. Therefore, when two countries have ratified the protocol during year t, there could be 364 days between their ratifications. It is thus useful to take a different definition of ratification year. We therefore considered that a country ratifies at time t if it ratified between the 1st of July of year t−1 and the 30th of June of year t. We then re-estimated the same equations presented in Table 2 of the paper. Our results are robust to this change.

However, note that the results of column (3) in Table 3 should be taken with caution. Since EU countries are the main financiers of CDM projects, only four credit buyers (Canada, Japan, Norway and Switzerland) are left in the sample when we drop them.

The online Appendices can be accessed at: supplementary_material.

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Title: Exploring the nature of inter-country interactions in the process of ratifying international environmental agreements: the case of the Kyoto Protocol
Author: Alexandre Sauquet
Publication date: 01-04-2014
Publisher: Springer US
Published in: Public Choice / Issue 1-2/2014
Print ISSN: 0048-5829
Electronic ISSN: 1573-7101
DOI: https://doi.org/10.1007/s11127-012-0033-y

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