Renegotiations in the Greenhouse

Abstract

International climate policies are being shaped in a process of ongoing negotiations. This paper develops a sequential game framework to explore the stability of international climate agreements allowing for multiple renegotiations. We analyse how the incentives to reach an international climate agreement in the first period will be impacted by the prospect of further negotiations in later periods and by the punishment options related to renegotiations. For this purpose we introduce a dynamic model of coalition formation with twelve world regions that captures the key features of the climate-economy impacts of greenhouse gas emissions. For a model with one round of renegotiations we find that a coalition of China and the United States is the unique renegotiation proof equilibrium. In a game with more frequent renegotiations we find that the possibility to punish defecting players helps to stabilise larger coalitions in early stages of the game. Consequently, several renegotiation proof equilibria emerge that outperform the coalition of China and USA in terms of abatement levels and global payoff. The Grand Coalition, however, is unstable.