Conference Agenda

Despite the Paris Agreement, countries worldwide persist in non-harmonized and weak climate policies, triggered by concerns about competitiveness and trade effects. In view of this, the concept of a “climate club” of countries appears to be a promising complement to the Paris Agreement. This study sheds light on the potential of such a club through the use of an agent-based model that explores its dynamics and convergence to a stable coalition. The model describes 31 heterogeneous (blocks of) countries calibrated on empirical data concerning carbon emissions, abatement costs, domestic carbon prices, and the relative change in export volume upon the introduction of a border carbon tariff. In each period, non-members evaluate the possibility to join the club, while club members consider the option of leaving it, based on trading-off costs and benefits. The iterative process of joining and leaving is repeated until a stable coalition emerges in which no country wants to change its membership status. We run the model for 117 scenarios that capture a variation in the values of four key parameters: the initial coalition, the uniform carbon price of the club, the stringency of the border tariff, and the allocation of tariff revenues. An additional scenario is developed to capture the implications of WTO rules. The results indicate that achieving global coverage by a club created by the European Union alone or together with the United States has a high likelihood under a sufficiently stringent border tariff, equal to or higher than the club’s carbon price. Moreover, a partial return of the tariff revenues to non-members helping them cover abatement costs serves both to mitigate the risk of trade retaliation and to further motivate outsiders to join the club.

Many poor countries are ill-adapted to the current leave alone a changing future climate, because they lack the necessary financial means to invest in efficient and cost-effective safeguarding measures. International endeavours to fund institutions, such as the Green Climate Fund, to provide financial assistance in this respect have not been as successful has hoped for. In this paper, I set up a simple two-player two-stage model, in which a rich country (North) can invest into adaptation measures in a poor country (South). I show that a necessary condition for North to invest into adaptation investments in South is that this results in decreasing equilibrium emissions of South. I find that this can only happen if the funded adaptation measures also have a flavor of mitigation, i.e., apart from safeguarding South from climate damages they have to reduce South's marginal abatement costs. My results have important policy implications for the selection of adaptation and mitigation projects by international adaptation funding organizations, such as the Green Climate Fund.

In this paper, we examine the incentives for developing, dirty good-exporting (or south) countries to form self-enforcing environmental agreements with other south countries or with the clean-exporting north. In terms of pure environmental agreements, our model illustrates the free-riding problem for IEAs and shows the self-enforcing equilibrium agreement outcomes. Depending on sectoral productivity differences and the extent of externalities, we show that agreements can range from no agreement at all to IEAs that comprise most but not all countries, while a self-enforcing global agreement remains impossible. We examine whether self-exclusion incentives can be offset by including bargaining over free trade along with environmental cooperation. While some agreements expand relative to the only-environmental negotiation case, leading to both gains from increased trade and environmental cooperation, we show a global environmental agreement can be self-enforcing for moderate productivity gaps and sufficiently high pollution damages.

Cities cooperating in transnational networks have been identified as promising actors

to close the ambition gap in international climate policy. Yet, formal game-theoretic

models of international environmental agreements (IEAs) still mostly treat the nation

state as a “black box”. This paper explores interactions between international agreements

among countries and the potential formation of transnational networks among

cities. We demonstrate that this interaction crucially depends on the details of the international

agreements: if the IEA formulates quantity based mitigation targets, countries

have incentives to support city networks. This can be different when the IEA sets an

international carbon price. Here, international agreements may crowd out otherwise

existing incentives to join a city network. We further explore the impact of such networks

on the incentives to join international agreements. We show that for both price

and quantity based IEAs, coalition sizes may increase and efficiency gains may result

due to the presence of transnational networks.

We analyse ecosystem resilience under uncertainty as a public good. Due

to the self-protection structure of the (private and public) optimization problems and

non-convex ecosystem dynamics, it is not guaranteed that the optimization problems

are convex. We extend an existing ecological-economic model of resilience to capture

the public good aspect. We show that in contrast to the traditional public good lit-

erature, Nash-equilibria can be Pareto-efficient under certain conditions. We illustrate

our findings in a numerical example. Our results suggest that new policy measures for

decentralised provision of ecosystem resilience are conceivable. For example, the gov-

ernment can ensure initial conditions such that there is no incentive for free-riding and

individuals cooperate in their best interest.

This paper explores potential trade-offs between a transition to renewable energy and a reliance on fossil energy imports for a small-open developing economy. Due to high installation costs for a renewable energy infrastructure and limited access to finance, lower and middle income countries that do not possess significant energy resources domestically opt to import relatively cheap fossil energy. However, renewable energy becomes increasingly competitive. Additionally, within the Kyoto Protocol and the Paris Agreement, developed countries have assured developing countries their financial assistance in enhancing clean energy production. Therefore, we develop a dynamic model for long-run economic growth in import dependent lower and middle income countries that have the option to transition to renewable energy production once it becomes competitive. We perform numerical simulations for three scenarios. First, we show that a transition to renewable energy has long-run benefits over importing fossil fuels if they become relatively expensive and countries receive the assured financial inflows. Second, the energy transition can accelerate in a flexible exchange rate regime with an additional promotion for a structural transformation of the labour market. Third, high growth in a modern production sector and lacking financial support has adverse implications for achieving a transition to an autonomous clean energy system.

In this paper, we investigate the effect of asymmetry among countries on their

participation choices in a climate coalition formation game with a tipping point

as a threshold for when catastrophic climate damages are triggered. While under

symmetry, the presence of such a tipping point can alter the game into a coor-

dination problem, rendering the formation of the grand coalition an equilibrium

outcome, asymmetry introduces complexities. We examine two types of asymme-

try among countries: differing abatement costs or divergent magnitudes of damages

from reaching the tipping point. We demonstrate that for certain asymmetry con-

figurations, the grand coalition no longer constitutes an equilibrium outcome. Even

if a subset of countries then establishes a coalition and the catastrophe is averted in

the end, the outcome is inefficient due to the non-optimal distribution of abatement

efforts, resulting in higher overall expenses under a convex abatement cost function.