Some Economics of International Climate Policy

This chapter discusses economic aspects of international efforts to curb the global warming threat. The first commitment period of the Kyoto Protocol expired in 2012, which has until then been the dominant climate agreement although competing – or allegedly complement – international climate protection schemes like the Asia-Pacific Partnership on Clean Development and Climate also existed. While as of 5 April 2011, the Asia-Pacific Partnership on Clean Development and Climate (APP) formally concluded its joint work, tangible preparations for a second commitment period of the Kyoto Protocol started at the climate conference in Montreal (comprising MOP and COP-11) in 2005. In Montreal, a new working group was established for the discussion of future commitments (after 2012). And at the COP-18 in Doha in 2012, an agreement on a second commitment period of the Kyoto Protocol for 2013–2020 could be reached.

In this chapter, we describe the main features of Kyoto and APP schemes and their failure to establish an efficient global climate protection regime, and we elaborate on the disincentives for countries to commit to efficient climate protection efforts in an international agreement. In doing so we also take into account the growing importance of adaptation to climate change in the international climate policy arena.

The situation in international negotiations on climate change mitigation faced by national governments is depicted in game theoretic settings, and private ancillary benefits of climate policy are identified to raise the likelihood for countries joining an international agreement. Yet, it remains quite disputable to which extent ancillary benefits can be an impetus for more action in international climate policy. Finally, after dedicating a large part of the chapter to agreements, like the Kyoto Protocol, stipulating abatement quantities, alternative schemes are presented which were coined “price ducks” since they influence the effective prices of climate protection. By manipulating prices, e.g., via an international carbon tax, incentives are generated for producing higher climate protection levels. Recently, the so-called matching schemes influencing effective prices of climate protection raised much attention in the scientific literature. Such schemes may attenuate free- or easy-rider incentives in international climate policy and may even induce a globally efficient climate protection level.