Economic analysis of international environmental agreements: lessons learnt 2000–2020

Abstract

On the occasion of the 20th anniversary of International Environmental Agreements: Politics, Law & Economics, we conduct an extensive review of papers published in this journal that address the economic dimensions of international environmental agreements (IEAs). We focus particularly on the lessons learnt from this body of literature and the implications for the assessment and design of IEAs in relation to goals such as efficiency, effectiveness, and equity. Our key conclusions run as follows. First, at the international level, universal coalitions are more cost-efficient and effective than fragmented regimes, but more difficult to negotiate and less stable. Second, in developing countries, there is need for substantial external funding to cover the short-run costs of environmental compliance. Third, market-based solutions have been increasingly applied in international agreements but with mixed results. For example, cap-and-trade systems have the potential to achieve greenhouse gas emissions reductions and least economic cost. But in the provisioning of water services, private sector solutions often result in outcomes that are unaffordable for low-income groups or nonviable for businesses, suggesting well-designed public–private partnerships. At the international level, Green Bond markets can attract investors for climate and environmental projects, but implementation failures tend to weaken outcomes. Finally, in practical politics, economically optimal designs are rarely achieved. Future applied economic research should therefore critically investigate institutions and the scope for their reform. Gains in knowledge are expected to come from economic analyses taking a broader perspective on “the economy”, taking institutions and social and ecological relations into account from the start.