Transcript Poor countries

Game Theory and International Climate
Change Negotiations
ISSUE FINDING MEMO PRESENTATION (PATRIOT GAMES – EVAN WILLIAMS, MATT GUNDERSON,
& TOM GARLAND)
15 October 2014
Timeline for climate change negotiations (1992-2012)
1992
UN Framework Convention on Climate Change signed
1997
Kyoto Protocol signed – developed countries accept binding
targets for carbon emissions for 2012 and 2020
2001
US policy changes – will not ratify the Kyoto Protocol
2003
EU implements EU Emissions Trading Scheme
2005
55 signatories ratified Kyoto – comes into force
2012
Canada withdraws from Kyoto Protocol
2012
First commitment period for Kyoto Protocol (when
developed countries need to hit their first carbon target or
face penalties)
Categorization of countries in the UNFCCC
GDP/Capita
Industrialized
High
Annex I
(Rich)
Economies In
Transition
Developing
Medium
Vast majority of
historical
emissions
Low
Tiny fraction of
historical
emissions
Non-Annex I
(Poor)
Least Developed
Countries (LDCs)
Emissions
Very Low
Examples
US, UK, Japan,
EU, Canada,
Australia etc
(29 total)
Russia other
former members
of USSR
(14 total)
China, India,
Brazil, Mexico etc
(~ 100 total)
Lao PDR, most of
sub-Saharan
Africa
(49 total)
Calculating the payoffs of taking action on climate change
Act now
(“prevention better than
cure”)
Act later
(“deal with the costs
later”
Global GDP (1992)
60
60
Baseline economic growth
projection
(where world would be if
climate change was not an
issue)
152
152
Cost to avoid climate
change (short-term)
-2
0
Cost of dealing with
effects of climate change
(long-term)
0
-77
Global GDP (2050)
150
75
Clearly better for the
environment and the
economy
2050 payoffs for rich and poor countries in mid-1990s climate change
negotiations
Mid-90s baseline
Rich: 40
Poor: 20
Global: 60
Poor Countries
(non-Annex I)
Act now
Act later
Act now
Green growth
Rich: 100
Poor: 50
Global: 150
Green equity
Rich: 70
Poor: 65
Global: 135
Act later
Carbon colonialism
Rich: 85
Poor: 35
Global: 115
Carbon wasteland
Rich: 50
Poor: 25
Global: 75
Rich
Countries
(Annex I)
Why do developed countries decide to act unilaterally – dominant
strategy to act now
Mid-90s baseline
Rich: 40
Poor: 20
Global: 60
Poor Countries
(non-Annex I)
Act now
Act later
Act now
Green growth
Rich: 100
Poor: 50
Global: 150
Green equity
Rich: 70
Poor: 65
Global: 135
Act later
Carbon colonialism
Rich: 85
Poor: 35
Global: 115
Carbon wasteland
Rich: 50
Poor: 25
Global: 75
Rich
Countries
(Annex I)
Poor countries – what you want to do will depend on what rich
countries will do
Mid-90s baseline
Rich: 40
Poor: 20
Global: 60
Poor Countries
(non-Annex I)
Act now
Act later
Act now
Green growth
Rich: 100
Poor: 50
Global: 150
Green equity
Rich: 70
Poor: 65
Global: 135
Act later
Carbon colonialism
Rich: 85
Poor: 35
Global: 115
Carbon wasteland
Rich: 50
Poor: 25
Global: 75
Rich
Countries
(Annex I)
..but given dominant strategy of rich countries to act now, poor
countries will push for equity
Mid-90s baseline
Rich: 40
Poor: 20
Global: 60
Poor Countries
(non-Annex I)
Act now
Act later
Act now
Green growth
Rich: 100
Poor: 50
Global: 150
Green equity
Rich: 70
Poor: 65
Global: 135
Act later
Carbon colonialism
Rich: 85
Poor: 35
Global: 115
Carbon wasteland
Rich: 50
Poor: 25
Global: 75
Rich
Countries
(Annex I)
Poor countries – and ‘carbon colonialism’ would never have been
accepted given ethics (and the military might of certain poor countries)
Mid-90s baseline
Rich: 40
Poor: 20
Global: 60
Poor Countries
(non-Annex I)
Act now
Act later
Act now
Green growth
Rich: 100
Poor: 50
Global: 150
Green equity
Rich: 70
Poor: 65
Global: 135
Act later
Carbon colonialism
Rich: 85
Poor: 35
Global: 115
Carbon wasteland
Rich: 50
Poor: 25
Global: 75
Rich
Countries
(Annex I)
Equilibrium is for Green Equity scenario: rich act now, poor act later
Mid-90s baseline
Rich: 40
Poor: 20
Global: 60
Poor Countries
(non-Annex I)
Act now
Act later
Act now
Green growth
Rich: 100
Poor: 50
Global: 150
Green equity
Rich: 70
Poor: 65
Global: 135
Act later
Carbon colonialism
Rich: 85
Poor: 35
Global: 115
Carbon wasteland
Rich: 50
Poor: 25
Global: 75
Rich
Countries
(Annex I)
But this is a sub-optimal outcome!
The question facing negotiators
How can you change the game to give poor
countries an incentive to start fighting
climate change now?
The answer: the Clean Development Mechanism
Rich countries
• Meet their carbon
target at a lower cost
Clean Development
Mechanism (CDM)
Rich countries fund
deployment of
cutting edge clean
technology in poor
countries
Poor countries
• Poor countries get
access to capital and
cutting edge technology
so that they can
develop more rapidly
• Leapfrog dirty carbon
technology
Hoped that CDM would change payoffs to create new equilibrium of
green & equitable growth
Mid-90s baseline
Rich: 40
Poor: 20
Global: 60
Poor Countries
(non-Annex I)
Act now
Act later
Act now
Fair green growth
Rich: 100 80
Poor: 50 70
Global: 150
Green equity
Rich: 70
Poor: 65
Global: 135
Act later
Carbon colonialism
Rich: 85
Poor: 35
Global: 115
Carbon wasteland
Rich: 50
Poor: 25
Global: 75
Rich
Countries
(Annex I)
But it didn’t work – a critical group of industrialized economies pulled
out
Saw carbon constrained world
as a game they could win
Followed
through
EU, Japan
 Looser Kyoto targets
 Limited fossil fuel interests
Industrialized
economies
Saw carbon constrained world
as a game they would lose
 Tighter Kyoto targets
Pulled Out
US, Canada, Australia
 Significant fossil fuel
interests
 US – lost domestic political
support & suffered diluted
geopolitical strength
Conclusion – What does game theory teach us here?
 Understanding the payoff and incentives at the initial negotiating table
 Following the initial outcome, game theory allowed participants to redesign the game in
order to align individual country incentives with the socially optimal outcome
 Game theory also helps us explain why the mechanism broke down

Understanding how countries see payoffs evolving over time (e.g. the EU benefited from the
addition of the Eastern Bloc)

Understanding the change in policy by the US – it sees carbon as one piece in a larger game of
geopolitical chess
 Point for further inquiry – how could game theory help us fix the mechanism and reach a
socially optimal outcome?
Appendix
Why didn’t it work? Changes in US Political Focus
Why didn’t it work? Chinese GDP Growth: Actual vs Target
Sources: Central People's Government of the People's Republic of China, IMF; as of
03/05/2012. IMF estimated growth rates are based on constant 1990 prices in
Chinese yuan