Incentivizing cooperation on climate action

Many countries are failing to comply with the non-binding commitments of the Paris Agreement. An IIASA-led study offers clues on how to design an international climate agreement that could incentivize countries to cooperate.

Notwithstanding a general consensus that greenhouse gas emissions are too high, most governments would prefer other countries to reduce their emissions rather than reducing their own. The Paris Agreement is intended to solve this collective action dilemma over time, but according to many observers, this landmark accord is thus far proving insufficient.

The study advances the scientific feasibility analysis of an alternative approach to solving this problem in the form of emission reduction matching-commitment agreements, wherein participating countries can commit to reducing their emissions by an amount that is contingent upon the emissions reductions of other countries.

The study used a game-theoretic approach to model collective action in a one-shot “climate game” of two different countries. The model demonstrated how matching-commitment agreements can lead to a unique rational, stable, and efficient equilibrium outcome, at which the emissions of both countries are lower than they would have been in the absence of an agreement. Thus, such an agreement incentivizes countries to make matching commitments that in turn incentivize emissions reductions and reduce emissions. Importantly, countries make matching commitments without knowing which commitments other countries will make. Moreover, at this equilibrium, both countries would be better off in terms of economic payoffs than they would have been without the agreement.

The research supports and extends previous work on the potential of matching-commitment agreements to help overcome a collective action problem. In particular, it goes beyond a standard simplification of many game-theoretic models that consider identical countries by allowing for countries that have different characteristics, such as expected damages from climate change. While this heterogeneity complicates the technical analysis, adding this aspect of realism to the model lends credence to the notion that the study’s optimistic results will also apply in the real world.

Another novelty of the study was that it compared the equilibrium enabled through a matching-commitment agreement with another equilibrium that arises in the absence of such an agreement – otherwise the two alternative equilibria were derived from the same assumptions on the behavior of countries. This makes the comparison more meaningful than previous works that considered another, less realistic benchmark scenario. A similar approach could in principle be used to tackle other public goods problems in situations where enforcement is problematic.