Transcript Designing International Environmental Agreements

Designing International
Environmental Agreements
Charles D. Kolstad
3M Visiting Professor of Environmental Economics, MIT
and
Donald Bren Professor of Environmental Economics & Policy,
University of California, Santa Barbara
Some Prominent
Environmental Treaties
• CITES—Convention on International Trade in
Endangered Species (1973)
• ICRW—International Convention for the
Regulation of Whaling (1946)
• Montreal Protocol on Substances that Deplete
the Ozone Layer (1987)—a protocol of the
Vienna Convention (1985)
• Kyoto Protocol (1997) – a protocol of the UN
Framework Convention on Climate Change
(1992)
A Century of Environmental Treaties
Number by decade of initiation
1900
1910
1920
1930
Marine
Pollution
Marine
Fisheries
Marine
Mammals
Marine, Other
1940
3
1960
1970
1980
1990
1
2
9
8
4
3
7
3
9
14
1
International
Fresh Water
Air Pollution
Hazardous &
Nuclear
Nature &
Wildlife
1950
1
1
1
6
3
1
2
4
13
1
1
1
1
7
9
1
1
11
4
6
1
2
Forestry
Animal
Welfare
TOTAL
1
4
5
2
3
1
1
6
1
Antarctica
Plant
Protection
1
2
17
2
1
1
2
1
21
2
35
1
36
56
Source: Barrett (2003); table shows number of distinct new multilateral treaties by decade
in indicated categories. Excludes treaties which are no longer in force; includes treaties
which are currently in the ratification process.
What’s the Issue?
• Not a few but MANY environmental
treaties
• Some succeed; some do not
• What makes a treaty work?
The Card Game Analogy
• Each player is given two cards: one red and one black
• Each player will anonymously hand in one card to Center
(i.e., to Prof. Kolstad)
• Payoff to each student after play of game:
– 5 MIT Bucks for a red card in your hand
– 1 MIT Buck for each red card Center holds
– Maximum payoff: (N-1)+5 [where N = # students]
• Trade in your MIT Bucks for Wonderful MIT Memorabilia:
– Nice MIT Pen – 5 MIT Bucks
– Nicer MIT Pen – 8 MIT Bucks
– Really nice MIT Pen – 15 MIT Bucks
• Your task: figure out what to hand in to the Center
Your strategy
• Hand in your red card
– It yields less to you than if you kept it
– It yields far more to the group than if you kept
it.
– Society wants you to hand in your red card
• Keep your red card
– It is worth far more to you in your hand
– Your payoff will be higher; society’s lower
Results
• This experiment has been run many times
– typically ⅓ -- ⅔ of people hand in their red card
• When repeated with the same group, cooperation
(handing in the red card) tends to decline
• Analogous to transboundary environmental problems
– Fundamental conflct between individual and group interests
– Self-interest diverges from group interest
– Powerful incentives to shirk your responsibility
• Understanding how to solve card problem gives
insight into solving transboundary environmental
problems
Can an Agreement Solve Problem?
• What would the agreement involve?
– Agree to hand in red card
– Needs to involve everyone? Or is subset ok?
• What should be in the agreement?
– Penalties for cheating (ie, not handing in red card)
– Penalties for free-riding (ie, not joining but benefiting from agreement)
• Any other characteristics of agreement?
– Should be self-enforcing (ie, no appeal to higher authority)
– Must create an aggregate gain to participants
– Goes into effect when x% of people agree
• Agreement must distribute aggregate gain
– If people are different, must have side payments
– Must be in the self interest of individuals to join
Back to the Real World
• Card game has lessons for the real world
• Goal: identify desirable characteristics of
international environmental agreements
National vs. International
Fundamental Differences in Environmental Regulation
Do all participants
need to gain?
Needs to be selfenforcing?
Are effective
penalties easy?
Will all players
participate?
National
International
NO
YES
NO
YES
YES
NO
YES
NO
Desirable Attributes of a Successful
Multilateral Environmental Agreement
• Create an aggregate net benefit to participants
– overall gross benefits > overall gross costs
• Distribute the aggregate gain among participants
– For each participant, benefits > costs (individual rationality)
– Self-interest important in convincing country to agree
• Deter non-participation
– Must make it undesirable to remain outside agreement
– Trade sanctions most frequently used
– Design net benefits in > net benefits out (participation constraint)
• Deter non-compliance among participants
– Penalties must be credible
– Trade sanctions are easiest to use
• Deter entry of new non-participants (avoid “leakage”)
– Particularly appropriate for common property problems
– Saving a fishery increases rents and may induce non-fishing
countries to enter
Closer Look at Two Major Treaties
• Ozone protection in stratosphere –
Montreal Protocol
• Climate change and greenhouse gas
emissions – Kyoto Protocol
Montreal Protocol
Designed for CFC’s leading to Ozone Depletion
• Quantitative emission
limits for industrial,
transition and developing
countries
• Industrial countries pay
for added costs to
developing countries
• Trade sanctions for nonparticipants and violators
• Initial protocol modest;
gradually tightened over
10-year period
Ozone Levels Projected
Source: World Met Org
UN Framework Convention on
Climate Change – Kyoto Protocol
•
•
•
•
Emerged from Rio Conference in 1992
US signed and ratified UNFCCC
Modeled after Montreal Protocol
Kyoto Protocol (1997) defines emission
reductions for Annex I (developed) countries
• Developing countries largely exempt
• Penalities for noncompliance missing
Compare Montreal and Kyoto
Montreal
Developing Country
Reductions?
YES
Permanent?
YES
Emission Trading
NO
Side payments?
YES
Participation incentives YES
Leakage prevention?
YES
Adapted from Barrett (2003)
Kyoto
NO
NO
YES
NO
NO
NO
Payoffs to US with and without
Montreal
Billions of 1985 US$
Montreal
Protocol
Benefits
3,575
Unilateral Action
without Montreal
Protocol
1,373
Costs
21
21
Net
Benefits
3,554
1,352
Source: USEPA (1988), reproduced in Barrett (1999)
Emissions and Costs from Kyoto
(Estimate – some controversy here)
Base 2015 2015 Kyoto
Emissions Emissions Costs
US
1.73
1.69
91
EU
0.91
0.89
0
Russia & EE
0.82
0.75
-28
Rest of World
4.44
4.18
-11
WORLD
7.89
7.50
59
Units: For emissions, billions of tons of carbon; for costs, billions of 1990 US$, NPV
Source: Nordhaus and Boyer (2000). Assumes full trading of emission obligations;
anthropogenic emissions only.
Lessons
• Montreal has lessons for Climate
• Kyoto has ignored most of the important
characteristics needed in international
environmental agreement
• Small net benefits for climate has implications
– Strive to reduce economic inefficiencies
– Start small
• Uncertainties important
– Cost uncertainty is a major reason for reluctance
Further Reading
• Scott Barrett, Environment & Statecraft (Oxford
University Press, New York, 2003)
• Scott Barrett, “Montreal vs. Kyoto,” in Inge Kaul (Ed),
Global Public Goods (Oxford University Press, New
York, 1999) [see also other contributors to this
volume]
• Carlo Carraro (Ed), International Environmental
Negotiations (Edward Elgar, Cheltenham, UK, 1997)
• Charles Kolstad, Environmental Economics (Oxford
University Press, New York, 2000)