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A Good Opening: The Key to Make the Most of Unilateral Climate Action

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  • Valentina Bosetti

    (Fondazione Eni Enrico Mattei (FEEM) and Centro Euro-Mediterraneo per i Cambiamenti Climatici (CMCC))

  • Enrica De Cian

    (Fondazione Eni Enrico Mattei (FEEM) and Centro Euro-Mediterraneo per i Cambiamenti Climatici (CMCC))

Abstract

In this paper we argue that when a subgroup of countries cooperate on emission reduction, the optimal response of non-signatory countries reflects the interaction between three potentially opposing factors, the incentive to free-ride on the benefits of cooperation, the incentive to expand the demand of fossil fuels, and the incentive to adopt cleaner technologies introduced by the coalition. Using an Integrated Assessment Model with a game theoretic structure we find that cost-benefit considerations would lead OECD countries to undertake a moderate, but increasing abatement effort (in line with the pledges subscribed in Copenhagen). Even if emission reductions are moderate, OECD countries find it optimal to allocate part of their resources to energy R&D and investments in cleaner technologies. International spillovers of knowledge and technology diffusion then lead to the deployment of these technologies in non-signatory countries as well, reducing their emissions. When the OECD group follows more ambitious targets, such as 2050 emissions that are 50% below 2005 levels, the benefits of technology externalities do not compensate the incentives deriving from the lower fossil fuels prices. This suggests that, when choosing their unilateral climate objective, cooperating countries should take into account the possibility to induce a virtuous behaviour in non-signatory countries. By looking at a two-phase negotiation set-up, we find that free-riding incentives spurred by more ambitious targets can be mitigated by means of credible commitments for developing countries in the second phase, as they would reduce lock-in in carbon intensive technologies.

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Bibliographic Info

Paper provided by Fondazione Eni Enrico Mattei in its series Working Papers with number 2011.81.

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Date of creation: Nov 2011
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Handle: RePEc:fem:femwpa:2011.81

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Keywords: Technology Spillovers; Climate Change; Partial Cooperation;

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References

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Cited by:
  1. Bosetti, Valentina & Carraro, Carlo & De Cian, Enrica & Massetti, Emanuele & Tavoni, Massimo, 2013. "Incentives and stability of international climate coalitions: An integrated assessment," Energy Policy, Elsevier, Elsevier, vol. 55(C), pages 44-56.
  2. Enrica De Cian & Ilkka Keppo & Johannes Bollen & Samuel Carrara & Hannah Förster & Michael Hübler & Amit Kanudia & Sergey Paltsev & Ronald D. Sands & Katja Schumacher, 2013. "European-Led Climate Policy Versus Global Mitigation Action: Implications On Trade, Technology, And Energy," Climate Change Economics (CCE), World Scientific Publishing Co. Pte. Ltd., World Scientific Publishing Co. Pte. Ltd., vol. 4(su), pages 1340002-1-1.
  3. Francesca Sanna-Randaccio & Roberta Sestini & Ornella Tarola, 2014. "Unilateral Climate Policy and Foreign Direct Investment with Firm and Country Heterogeneity," Working Papers, Fondazione Eni Enrico Mattei 2014.55, Fondazione Eni Enrico Mattei.
  4. Kai Lessmann & Ulrike Kornek & Valentina Bosetti & Rob Dellink & Johannes Emmerling & Johan Eyckmans & Miyuki Nagashima & Hans-Peter Weikard & Zili Yang, 2014. "The Stability and Effectiveness of Climate Coalitions: A Comparative Analysis of Multiple Integrated Assessment Models," Working Papers, Fondazione Eni Enrico Mattei 2014.05, Fondazione Eni Enrico Mattei.

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