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Delegating climate policy to a supranational authority: a theoretical assessment

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  • Pichler, Paul
  • Sorger, Gerhard

Abstract

This paper studies the delegation of climate policy to a supranational environmental authority. We develop a simple model of a world consisting of a large number of countries, which derive utility from energy consumption. Countries suffer from global warming and local air pollution, both caused by the combustion of fossil fuels, and decide individually on investments in clean technologies for energy production. A supranational environmental authority decides for each country on the maximally permitted amount of greenhouse gas emissions. We demonstrate that the authority faces a dynamic inconsistency problem that leads to welfare losses, but these losses can be kept small if the authority is endowed with an optimally designed mandate. The optimal mandate penalizes the cost of local air pollution very heavily relative to the cost of global warming. However, delegation of climate policy faces a further difficulty, as countries have a recurrent incentive to change the authority’s mandate over time.

Suggested Citation

  • Pichler, Paul & Sorger, Gerhard, 2018. "Delegating climate policy to a supranational authority: a theoretical assessment," European Economic Review, Elsevier, vol. 101(C), pages 418-440.
  • Handle: RePEc:eee:eecrev:v:101:y:2018:i:c:p:418-440
    DOI: 10.1016/j.euroecorev.2017.10.014
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    More about this item

    Keywords

    Climate change; Supranational environmental authority; Dynamic inconsistency; Optimal delegation;

    JEL classification:

    • F53 - International Economics - - International Relations, National Security, and International Political Economy - - - International Agreements and Observance; International Organizations
    • H87 - Public Economics - - Miscellaneous Issues - - - International Fiscal Issues; International Public Goods
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • O44 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Environment and Growth
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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