Topics Today (4/25/13)  International environmental agreements  FAQs on a Carbon Tax 1Positive analysis: what about a global cooperative effort to reduce CO2 emissions?  Discussion of international efforts.  What’s been done?  Why hasn’t more been done? 2Game Theory --Theory of Strategic Interaction  Developed in 1950s for military planning.  Used extensively in political science and economics, evolutionary biology.  First application to natural resources was a model of two countries disputing the use of a fishing stock.  Relevant to situations where there is no authoritative regulator, as is the case with international environmental issues  International fisheries extraction  Climate change  Migratory wildlife species (e.g. birds, salmon, etc.)  Transboundary water allocation (Colorado River, Great Lakes, Negev Aquifer, etc.)  Biodiversity preservation 3The Prisoner’s Dilemma  Premise:  Two people (John and Mary) are charged with burglary.  Both are placed in separate jail cells.  Police need at least one person to confess. Do you know this game? A=Yes B=Yes, but could use refresher C=No 4The Prisoner’s Dilemma John Mary Confess Don’t Confess Confess 2 years, 2 years Free, 5 years Don’t Confess 5 years, free 6 mos, 6 mos 5 Two important features  Nash equilibrium is not efficient  Efficient outcome:  outcome that maximizes social net benefits (outcome for which there is no alternative that everyone prefers)  is not stable (if Mary and John swear to each other not to confess, they have an incentive to cheat on the agreement)  There exists a dominant strategy (play red) that leads to the Nash equilibrium The Prisoner’s Dilemma 6An environmental example of a Prisoner’s Dilemma  Bilateral agreement to improve the environment  Both countries would be better off compared to the no-agreement case if they both reduced  Nash Equilibrium: Neither country follows through on improvement  Agreement is not stable. 7An environmental example of a Prisoner’s Dilemma: treaty on emissions reduction Country Blue Country Green Refuse to ratify/honor the treaty Ratify/honor the treaty Refuse to ratify/honor the treaty 1,1 3,0 Ratify/honor the treaty 0,3 2,2 8What about a strategic interaction that plays out over time?  Is it possible that an agreement to obtain the cooperative (efficient) solution in the Prisoner’s Dilemma is stable in a dynamic context?  “Grim trigger” strategy  “You cheat, I’m going to cheat too”  Credible threat –reciprocal cheating is the dominant strategy.  In general, much more cooperation in a dynamic context 9Kyoto Protocol (1997)  Conference in Kyoto, Japan  Task was to create a legally-binding international agreement on climate change.  Targets and timetables  For Annex I countries, reduce ghgs in aggregate by 5.2% from a 1990 baseline for the 2008-12 time period.  Targets are differentiated by nation (U.S. is 7%).  Takes effect upon ratification of at least 55 nations, including Annex I countries accounting for at least 55% of the Annex I emissions 10Kyoto Protocol (1997)  Question, what is the order of total CO2 emissions by country? A=U.S., China, Japan, Germany, India B=U.S, Japan, Germany, China, Russia C=U.S., China, Russia, Japan, India D=China, U.S., India, Russia, Japan E=China, U.S., Russia, Japan, India 11CO2 Emissions by country http://edgar.jrc.ec.europa.eu/CO2REPORT2012.pdf 12CO2 Emissions Per Capita by Country Why has CO2 emissions per capita fallen in the U.S. since 2000? 13CO2 Emissions Per Unit GDP by Country 14Kyoto Protocol (1997) 15Kyoto Protocol (1997)  Importantly, China and India, as developing countries, were not required to reduce emissions. 16Kyoto Protocol (1997)  Currently 177 nations have signed the agreement.  Annex I ratifying countries account for 62% of Annex I ghg emissions.  Russia was last country to ratify in 2004  Agreement took effect in 2005 Green: ratified, yellow: signed, not yet ratified; grey:undecided 17Evidence of the Prisoner’s Dilemma: Why hasn’t the U.S. ratified the Kyoto protocol?  U.S. signed the agreement in 1998, but has never ratified it.  Byrd-Hagel Resolution in U.S. Senate (1997)  Passed 95 to 0.  The U.S. should accept no climate agreement that did not demand comparable sacrifices of all participants.  Sounds like a PD game –”we will if others will” 18Meeting obligations  SOURCE: NETHERLANDS ENVIRON. ASSESSMENT AGENCY/EC JOINT RES. CENTRE 19Even with Kyoto in place successfully … 20The Near-Term Future for Climate Agreements  By May 2012, the USA, Japan, Russia, and Canada had indicated they would not sign up to a second Kyoto commitment period.[158] In November 2012, New Zealand confirmed that it would not.]  On 8 December 2012, at the end of the 2012 United Nations Climate Change Conference, an agreement was reached to extend the Protocol to 2020 and to set a date of 2015 for the development of a successor document, to be implemented from 2020 21Kyoto Protocol as a strategic interaction: is it really a PD game?  Is it possible that U.S. (and China) believes that the Kyoto cooperative (commitment) outcome is worse than the noncooperative outcome?  Need to know benefits and costs of participation  In the game at right, there is no incentive for the U.S. to ratify. A threat by other countries not to ratify carries no force –the U.S. thinks it will be worse off if it ratifies with other countries than if all countries refuse to ratify. Country Blue (U.S.) Country Green Refuse to Ratify Ratify Refuse to Ratify 1,1 3,-2 Ratify 0,3 2,-1 22The future of international climate policy  Next global climate agreement either will not involve U.S., China, India, Russia, Japan, Canada and perhaps others, or will be very modest in its goals  Modest goals: “go slow”, reductions for developing countries tied to their economic growth  U.S. will pursue modest reductions from baseline; reductions likely driven by:  energy prices (relative and overall)  energy policy  tax policy  Technological advance (attempts at reductions will stimulate significant technological advances, which could change