Conference Agenda

International cooperation on greenhouse gas mitigation has proven challenging. First, abatement levels are insufficient because countries primarily consider only their own benefits from abatement. Second, low global abatement levels weaken incentives for green innovation. This paper examines how closer international cooperation on green innovation can address these challenges. We propose that willing countries should form a Green Innovation Club, which establishes a patent pool among member countries' innovating firms. Member countries collectively invest in breakthrough green technologies and gain free access to all patents developed within the club. We show that such a club, based on patent pooling, can increase global investment in green innovation. Furthermore, since member countries benefit from higher abatement levels, the club could also serve as a mechanism to spur global emission reductions. The club structure leverages the monopoly power of intellectual property rights to attract participation: non-members must license the technology, while investing members gain free access. This incentive structure ensures that members remain in the club, even when members abate more than non-members.

Creating an effective international environmental agreement has been a significant challenge in climate negotiations. Recently, the carbon taxes regime has become increasingly popular with economists. This paper employs a three-stage game model to compare the efficiency gains of negotiating a uniform carbon tax versus emissions caps in self-enforcing international agreements. Within a free trade market economy framework, which facilitates exploring the role of the terms of trade in shaping climate policies, we demonstrate that, in the absence of terms of trade effects, the uniform carbon tax agreement is equivalent to the emissions caps agreement. However, when countries internalize the effects of their climate policies on the terms of trade, the uniform carbon tax agreement slightly enhances international climate cooperation. Nonetheless, the contribution to improvement in climate cooperation remains relatively modest.

How does the introduction of a second public good change the incentives for global cooperation? We analyse this question in the context of a non cooperative coalition formation game with n symmetric players. The gains from cooperation remain small for independent goods and substitutes. For complements, the grand coalition can be stable and effective. This is possible when the agreement focusses on one good. In this case, coalition expansion can indirectly promote provision of the excluded complementary good by members and, more importantly, non-members, reducing incentives to free ride. Therefore, in the two-good setting, a partial agreement introduces a novel avenue for effective cooperation.

We show that climate policies combining both supply-side and demand-side instruments have a greater prospect of being self-enforcing than policies that limit emissions solely by restricting the demand for fossil fuels. Using only demand-side instruments (like emission taxes or tradable emission permits) lowers the market price of fossil fuels, thereby increasing the gains from trade that countries obtain by deviating from an agreement, and reducing the gains that exporters reap from cooperation. By instead using a combination of extraction and emission taxes, leading to a higher market price, the defecting country’s gains from trade can be reduced, and the exporters’ and importers’ gains from cooperation are equalized. We demonstrate that, when the first-best agreement is not self-enforcing, then both the depth and the value of the second-best treaty are increased by combining extraction and emission taxes.