Policies for climate change

In my thesis, I address two important issues: (i) the creation of a price signal through the use of carbon markets (or cap-and-trade schemes) and (ii) the necessity to reach a global agreement on greenhouse gas emission reduction policies. It consists of three separate papers. Chapters 2 and 3 of this thesis emphasize theoretically and empirically the fact that achieving international cooperation on climate change is very difficult. Chapter 3 suggests that the global nature of the climate change problem and the design of climate agreements (i.e. the means available to reduce CO2 emissions) may explain this failure. Chapter 2 shows theoretically that asymmetric information between countries may exacerbate the free-rider problem. These two chapters also provide some possible solutions to the lack of international cooperation. To address the issue of information asymmetry, chapter 2 proposes the creation of institutions in charge of gathering and certifying countries' private information before environmental negotiations. If achieving international cooperation is still not possible, chapter 3 suggests that regional cooperation may supplement global treaties. Chapter 1 presents an example of such a regional agreement to reduce CO2 emissions. The EU emissions trading system is a cornerstone of the European Union's policy to combat climate change. However, as it is highlighted in chapter 1, the design of such regional carbon markets really matters for their success in reducing carbon emissions. This chapter shows the interactions between intertemporal permit trading and the incentives of firms to undertake long-term investments in abatement technologies.