Abstract
We show that an appropriately-designed “Refunding Club” can simultaneously solve both free-riding problems in mitigating climate change—participating in a coalition with an emission reduction target and enduring voluntary compliance with the target once the coalition has been formed. Countries in the Club pay an initial fee into a fund that is invested in assets. In each period, part of the fund is distributed among the Club members in relation to the emission reductions they have achieved, suitably rescaled by a weighting factor. We show that an appropriate refunding scheme can implement any feasible abatement path a Club wants to implement. The contributions to the initial fund can be used to disentangle efficiency and distributional concerns and/or to make a coalition stable. Making the grand coalition stable in the so-called “modesty approach” requires less than 0.5% of World GDP. Finally, we suggest ways to foster initial participation, to incorporate equity concerns with regard to developing countries, and ways to ease the burden to fill the initial fund.
Highlights
1.1 MotivationInternational treaties on the provision of global public goods have a fundamental freeriding problem: each country’s contribution will benefit all countries in a non-exclusive and non-rival manner
After the first commitment period of the Kyoto Protocol has expired,1 the international community has consistently failed to agree on a subsequent international agreement to reduce greenhouse gas emissions, be it in Copenhagen (2009), Cancún (2010), Durban (2011), Doha (2012) or Warsaw (2013)
We investigate the refunding scheme independently of the requirement that all countries participate, i.e., it can be applied to any coalition that forms with initial payments for a climate fund
Summary
International treaties on the provision of global public goods have a fundamental freeriding problem: each country’s contribution will benefit all countries in a non-exclusive and non-rival manner. This Prisoner’s Dilemma aspect and the absence of a supranational authority make international coordination crucial and exceptionally difficult to achieve at the same time. Even if the free-riding problem might be solved temporarily, little is achieved if the international community fails to agree on a subsequent agreement when a first agreement has expired. After the first commitment period of the Kyoto Protocol has expired, the international community has consistently failed to agree on a subsequent international agreement to reduce greenhouse gas emissions, be it in Copenhagen (2009), Cancún (2010), Durban (2011), Doha (2012) or Warsaw (2013). Many countries fall short to deliver their self-proclaimed “nationally determined contributions”
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