Political Influence on Non-Cooperative International Climate Policy

Abstract

We analyze non-cooperative international climate policy in a setting of political competition by national interest groups. In the first stage, countries decide whether to link their domestic emission permit markets to an international market, which only forms if it is supported by all countries. In the second stage, countries non-cooperatively decide on the number of tradable emission allowances. In both stages, special interest groups try to sway the government in their favor. We find that both the choice of regime and the levels of domestic and global emissions only depend on the aggregate levels of organized stakes in all countries and not on their distribution among individual interest groups, and an increase in lobbying influence by a particular lobby group may backfire by inducing a change towards the lobby group's less preferred regime.

Keywords: non-cooperative climate policy, political economy, emissions trading, environmental awareness

JEL Classification: D72, H23, H41, Q58