We study the interaction of climate policies and investments into black and green energy generation capacity if policies are set by elected governments and can lead to stranded assets. Within an overlapping generations model, elections determine carbon taxation and green investment subsidies, and individuals make investments into energy capacity given an uncertain election outcome. Some black investments become stranded assets, if the party offering the higher carbon tax is unexpectedly elected. If the party representing the young generation is in power, it can use a high subsidy to reduce or even avoid potentially stranded assets in the next period. With endogenous reelection probability, we show that this party can also use investment subsidies strategically to influence the elections. The party that represents the old generation abstains from both types of climate policies to avoid a redistribution of income towards the young generation.

This paper investigates the role that domestic elections play for IEAs and to what extent they might be an explanatory factor for the modest success of international cooperation on climate change mitigation. Agents involved in international negotiations are often subject to domestic electoral concerns and therefore, policy decisions might affect their chances of reelection in upcoming elections. Also, international treaties usually last beyond a governments’ incumbency, which implies that the negotiation and ratification decision might be made by two different entities. I formulate a 4-stage game in order to analyse the arising strategic incentives depending on the level of political polarisation. I find that incumbent governments mostly choose suboptimal treaties compared to if there was no election in order to boost their chances of reelection. Additionally, I find that increased political polarisation generally leads to more distorted treaties and worse outcomes from the perspective of the median voter.

We study the formation of international climate coalitions. Countries are farsighted and rationally predict the consequences of their membership decisions in climate negotiations. We offer an approach to characterise the equilibrium number of coalitions and their number of signatories independent of their heterogeneity, and we suggest a tractable algorithm to fully characterise the equilibrium. In a dynamic game analysis of an integrated assessment model of the economy and the temperature dynamics, if the policymakers are patient enough and the number of countries is not too large, the number of signatories in all climate treaties is a Tribonacci number. In general, we investigate possible coalition structure outcomes for a calibrated model. In contrast to earlier approach based on internal and external stability, much larger coalitions can be sustained in equilibrium and coalitions of different sizes can co-exist alongside each other.

This paper analyses the effects of altruism on the formation of climate coalitions in the standard two-stage game of self-enforcing international environmental agreements with identical countries. Altruism implies that each country values, to some extent, every other country's welfare when deciding on its coalition membership and emissions policy. In the Nash [Stackelberg] game, altruism decreases [increases] the coalition size. In any case, global emissions and global welfare are close to the non-cooperative values. However, altruism narrows the gap between the individually optimal emissions and the socially optimal emissions, so altruism increases global welfare.

The effects of altruism on the formation of climate coalitions crucially depends on its modelling: If altruism affects the membership decision but not the policy decision, or if each coalition country is more altruistic toward other coalition countries than toward fringe countries, altruism can stabilise large coalitions up to the grand coalition...