Advertisement

How empirical uncertainties influence the stability of climate coalitions

  • Jasper N. MeyaEmail author
  • Ulrike Kornek
  • Kai Lessmann
Original Paper

Abstract

International climate agreements are negotiated in the face of uncertainties concerning the costs and benefits of abatement and in the presence of incentives for free-riding. Numerical climate coalition models provide estimates of the challenges affecting cooperation, but often resort to assuming certainty with respect to the values of model parameters. We study the impact of uncertainty on the stability of coalitions in the Model of International Climate Agreements using the technique of Monte Carlo analysis. We extend the existing literature by (1) calibrating parametric uncertainty about damages and abatement costs to estimates from meta-studies and by (2) explicitly considering uncertainty in the curvature of the damage function. We find that stability is more sensitive to uncertainty in damages than in abatement costs and most sensitive to uncertainty about the regional distribution of damages. Our calculations suggest that heterogeneity can increase stability of coalitions; however, this depends on the availability of transfers.

Keywords

International environmental agreements Climate coalition formation Uncertainty Monte Carlo analysis Numerical modelling 

JEL Classification

C72 D80 H87 Q54 

Notes

Acknowledgements

We thank Achim Hagen, Andrew Halliday as well as conference participants at ICP 2015, EAERE 2016 and especially two anonymous reviewers for helpful comments on earlier drafts of this paper.

Compliance with ethical standards

Conflict of interest

The authors declare that they have no conflict of interest.

Supplementary material

10784_2017_9378_MOESM1_ESM.png (21 kb)
Figure 5: Histogram of the realization of the abatement cost factor k (PNG 20 kb)
10784_2017_9378_MOESM2_ESM.png (24 kb)
Figure 6: Histogram of the realization of ϴ1 in case of uncertainty in global damages for EUR (PNG 23 kb)
10784_2017_9378_MOESM3_ESM.png (27 kb)
Figure 7: Histogram of the realization of ϴ1 in case of uncertainty in regional damages for EUR (PNG 26 kb)
10784_2017_9378_MOESM4_ESM.png (23 kb)
Figure 8: Histogram of the realization of ϴ2 (PNG 22 kb)

References

  1. Barrett, S. (1994). Self-enforcing international environmental agreements. Oxford Economic Papers, 46, 878–894.CrossRefGoogle Scholar
  2. Barrett, S. (2003). Environment and statecraft: The strategy of environmental treaty-making. Oxford: Oxford University Press.CrossRefGoogle Scholar
  3. Barrett, S. (2005). The theory of international environmental agreements. In K.-G. Mäler & J. R. Vincent (Eds.), Handbook of environmental economics (pp. 1457–1516). Amsterdam: Elsevier.Google Scholar
  4. Barrett, S. (2013). Climate treaties and approaching catastrophes. Journal of Environmental Economics and Management, 66(2), 235–250.CrossRefGoogle Scholar
  5. Bosetti, V., Carraro, C., De Cian, E., Massetti, E., & Tavoni, M. (2013). Incentives and stability of international climate coalitions: An integrated assessment. Energy Policy, 55, 44–56.CrossRefGoogle Scholar
  6. Bosetti, V., Carraro, C., Galeotti, M., Massettti, E. & Tavoni, M. (2006). WITCH: A world induced technical change hybrid model. The Energy Journal, Special Issue, Hybrid modelling of energy—environmental policies: Reconciling bottom-up and top-down, (Vol. 27, pp 13–37).Google Scholar
  7. Bréchet, T., Gerard, F., & Tulkens, H. (2011). Efficiency vs. stability in climate coalitions: A conceptual and computational appraisal. The Energy Journal, 31(1), 49–75.Google Scholar
  8. Bréchet, T., Thénié, J., Zeimes, T., & Zuber, S. (2012). The benefits of cooperation under uncertainty: The case of climate change. Environmental Modelling and Assessment, 17(1), 149–162.CrossRefGoogle Scholar
  9. Carraro, C., Eyckmans, J., & Finus, M. (2006). Optimal transfers and participation decisions in international environmental agreements. The Review of International Organizations, 1(4), 379–396.CrossRefGoogle Scholar
  10. Carraro, C., & Siniscalco, D. (1993). Strategies for the international protection of the environment. Journal of Public Economics, 52(3), 309–328.CrossRefGoogle Scholar
  11. Clarke, L., Edmonds, J., Krey, V., Richels, R., Rose, S., & Tavoni, M. (2009). International climate policy architectures: Overview of the EMF 22 international scenarios. Energy Economics, 31, 564–581.Google Scholar
  12. Crost, B., & Traeger, C. P. (2011). Risk and aversion in the integrated assessment of climate change. CUDARE working papers. Department of Agricultural & Resource Economics, University of Carlifornia, Berkeley.Google Scholar
  13. d’Aspremont, C. & Gabszewicz, J. J. (1986). On the stability of collusion. In J. E. Stiglitz & G. F. Mathewson (Eds.), New developments in the analysis of market structure. International economic association series (Vol. 77). London: Palgrave Macmillan.Google Scholar
  14. Dellink, R. (2011). Drivers of stability of climate coalitions in the STACO model. Climate Change Economics, 2(2), 105–128.CrossRefGoogle Scholar
  15. Dellink, R., Altamirano-Cabrera, J. C., Finus, M., von Ireland, E. & Weikard, H. (2004). Empirical background paper of the STACO model. http://www.wageningenur.nl/web/file?uuid=9115e403-7832-48d6-ac1c-eb61f67edbec&owner=d1bd6906-08fd-4139-956f-b8004307a16e. Accessed 01 Aug 2013.
  16. Dellink, R., Dekker, T., & Ketterer, J. (2013). The fatter the tail, the fatter the climate agreement. Simulating the influence of fat tails in climate change damages on the success of international climate negotiations. Environmental & Resource Economics, 56(2), 277–305.CrossRefGoogle Scholar
  17. Dellink, R., & Finus, M. (2012). Uncertainty and climate treaties: Does ignorance pay? Resource and Energy Economics, 34(4), 565–584.CrossRefGoogle Scholar
  18. Dellink, R., Finus, M., & Olieman, N. (2008). The stability likelihood of an international climate agreement. Environmental & Resource Economics, 39(4), 337–377.CrossRefGoogle Scholar
  19. Dietz, S. (2011). High impact, low probability? An empirical analysis of risk in the economics of climate change. Climatic Change, 108(3), 519–541.CrossRefGoogle Scholar
  20. Eyckmans, J. & Bréchet, T. (2012). Coalitions in the 18 region stochastic CWS model, presented at the workshop on modeling climate coalitions, Potsdam Institute for Climate Impact Research, February 8-9, 2012.Google Scholar
  21. Eyckmans, J. & Finus, M. (2006). Coalition formation in a global warming game: how the design of protocols affects the success of environmental treaty-making. Natural Resource Modeling, 19(3), 323–358.CrossRefGoogle Scholar
  22. Finus, M. (2008). Game theoretic research on the design of international environmental agreements: Insights, critical remarks, and future challenges. International Review of Environmental and Resource Economics, 2(1), 29–67.CrossRefGoogle Scholar
  23. Finus, M., & Pintassilgo, P. (2013). The role of uncertainty and learning for the success of international climate agreements. Journal of Public Economics, 103, 29–43.CrossRefGoogle Scholar
  24. Hoel, M. (1992). International environmental conventions: the case of uniform reductions of emissions. Environmental & Resource Economics, 2(2), 141–159.Google Scholar
  25. Hwang, I. C., Reynès, F., & Tol, R. S. J. (2013). Climate policy under fat-tailed risk: An application of dice. Environmental & Resource Economics, 56(3), 415–436.CrossRefGoogle Scholar
  26. IPCC. (2001). Climate change 2001: Impacts, adaptation, and vulnerability. Cambridge: Cambridge University Press.Google Scholar
  27. Jakob, M., Lessmann, K., & Wildgrube, T. (2014). The role of emissions trading and permit allocation in international climate agreements with asymmetric countries. Strategic Behavior and the Environment, 4(4), 361–392.CrossRefGoogle Scholar
  28. Kolstad, C. D. (2007). Systematic uncertainty in self-enforcing international environmental agreements. Journal of Environmental Economics and Management, 53, 68–79.CrossRefGoogle Scholar
  29. Kolstad, C. D., & Ulph, A. (2008). Learning and international environmental agreements. Climatic Change, 89, 125–141.CrossRefGoogle Scholar
  30. Kolstad, C. D., & Ulph, A. (2011). Uncertainty, learning and heterogeneity in international environmental agreements. Environmental & Resource Economics, 50, 389–403.CrossRefGoogle Scholar
  31. Kornek U., Lessmann K. & Tulkens H. (2014). Transferable- and non-transferable utility implementations of coalitional stability in integrated assessment models. CORE discussion paper, No. 35Google Scholar
  32. Kornek, U., Steckel, J., Lessmann, K., & Edenhofer, O. (2017). The climate rent curse: New challenges for burden sharing. International Environmental Agreements. doi: 10.1007/s10784-017-9352-2.Google Scholar
  33. Leimbach, M., Bauer, N., Baumstark, L., & Edenhofer, O. (2010). Mitigation costs in a globalized world: climate policy analysis with REMIND-R. Environmental Modelling and Assessment, 15(3), 155–173.CrossRefGoogle Scholar
  34. Lessmann, K., Kornek, U., Bosetti, V., Dellink, R., Emmerling, J., Eyckmans, J., et al. (2015). The stability and effectiveness of climate coalitions: A comparative analysis of multiple integrated assessment models. Environmental & Resource Economics, 62(4), 811–836.CrossRefGoogle Scholar
  35. Lessmann, K., Marschinski, R., & Edenhofer, O. (2009). The effects of tariffs on coalition formation in a dynamic global warming game. Economic Modelling, 26(3), 641–649.CrossRefGoogle Scholar
  36. Na, S., & Shin, H. S. (1998). International environmental agreements under uncertainty. Oxford Economic Papers, 50(2), 173–1785.CrossRefGoogle Scholar
  37. Nordhaus, W. D. (1994). Managing the global commons. The economics of climate change. London: MIT Press.Google Scholar
  38. Nordhaus, W. D. (2008). A question of balance: Weighting the options on global warming. New Heaven: Yale University Press.Google Scholar
  39. Nordhaus, W. D. (2010). Economic aspects of global warming in a post-Copenhagen environment. PNAS, 107(26), 11721–11726.CrossRefGoogle Scholar
  40. Nordhaus, W. D. (2011). The economics of tail events with an application to climate change. Review of Environmental Economics and Policy, 5(2), 240–257.CrossRefGoogle Scholar
  41. Nordhaus, W. D. (2012). Economic Policy in the face of severe tail events. Journal of Public Economic Theory, 14(2), 197–219.CrossRefGoogle Scholar
  42. Nordhaus, W. D., & Yang, Z. (1996). A regional dynamic general-equilibrium model of alternative climate-change-strategies. The American Economic Review, 86(4), 741–765.Google Scholar
  43. Olieman, N. J., & Hendrix, E. M. T. (2006). Stability likelihood of coalitions in a two-stage cartel game: An estimation method. European Journal of Operational Research, 174(1), 333–348.CrossRefGoogle Scholar
  44. Tavoni, M., & Tol, R. S. J. (2010). Counting only the hits? The risk of underestimating the cost of stringent climate policy. A letter. Climatic Change, 100, 769–778.CrossRefGoogle Scholar
  45. Tol, R. S. T. (1995). The damage costs of climate change toward more comprehensive calculations. Environmental & Resource Economics, 5(4), 353–374.CrossRefGoogle Scholar
  46. Tol, R. S. J. (2012). On the uncertainty about the total economic impact of climate change. Environmental & Resource Economics, 53, 97–116.CrossRefGoogle Scholar
  47. Tol, R. S. J. (2013). Targets for global climate policy: An overview. Journal of Economic Dynamics & Control, 37, 911–928.CrossRefGoogle Scholar
  48. Tol, R. S. J. (2014). Correction and update: The economic effects of climate change. The Journal of Economic Perspectives, 28(2), 221–225.CrossRefGoogle Scholar
  49. Weikard, H. P. (2009). Cartel stability under optimal sharing rule. The Manchester School, 77, 575–593.CrossRefGoogle Scholar
  50. Weitzman, M. L. (2007). A review of the stern review on the economics of climate change. Journal of Economic Literature, 45(3), 703–724.CrossRefGoogle Scholar
  51. Weitzman, M. L. (2009). On modelling and interpreting the economics of catastrophic climate change. The Review of Economics and Statistics, 91(1), 1–19.CrossRefGoogle Scholar
  52. Weitzman, M. L. (2010). What is the “damage function” for global warming—and what difference might it make? Climate Change Economics, 1(1), 57–69.CrossRefGoogle Scholar
  53. Weitzman, M. L. (2012). GHG targets as insurance against catastrophic climate damages. Journal of Public Economic Theory, 14(2), 221–244.CrossRefGoogle Scholar

Copyright information

© Springer Science+Business Media B.V. 2017

Authors and Affiliations

  • Jasper N. Meya
    • 1
    • 2
    Email author
  • Ulrike Kornek
    • 3
    • 4
  • Kai Lessmann
    • 4
  1. 1.Department of EconomicsUniversity of OldenburgOldenburgGermany
  2. 2.Resource Economics GroupHumboldt-Universität zu BerlinBerlinGermany
  3. 3.Mercator Research Institute on Global Commons and Climate ChangeBerlinGermany
  4. 4.Potsdam Institute for Climate Impact ResearchPotsdamGermany

Personalised recommendations