Emissions Trading with Non‐Signatories in a Climate Agreement - An Analysis of Coalition Stability

28 Pages Posted: 30 Dec 2014

See all articles by Kai Lessmann

Kai Lessmann

Potsdam Institute for Climate Impact Research (PIK)

Robert Marschinski

Potsdam Institute for Climate Impact Research (PIK)

Ulrike Kornek

Potsdam Institute for Climate Impact Research (PIK)

Michael Finus

University of Bath

Ottmar Edenhofer

Potsdam Institute for Climate Impact Research (PIK); Mercator Research Institute on Global Commons and Climate Change (MCC); Technische Universität Berlin (TU Berlin)

Date Written: December 2014

Abstract

We investigate how different designs of carbon offset mechanisms, like the Kyoto Protocol's Clean Development Mechanism (CDM), affect the success of self‐enforcing climate treaties. In a game‐theoretic numerical model of coalition formation we find that participation in the agreement is negatively affected when strategic behavior and free‐rider incentives matter. This does not change when selling targets restrict credit supply. Substantially higher participation emerges when the treaty restricts its signatories not to use the gains from credit trading to lower their emission caps. Despite the high sensitivity of participation to different CDM design, we find that global welfare levels achieved in various equilibria are remarkably similar.

Suggested Citation

Lessmann, Kai and Marschinski, Robert and Kornek, Ulrike and Finus, Michael and Edenhofer, Ottmar, Emissions Trading with Non‐Signatories in a Climate Agreement - An Analysis of Coalition Stability (December 2014). The Manchester School, Vol. 82, pp. 82-109, 2014. Available at SSRN: https://ssrn.com/abstract=2543874 or http://dx.doi.org/10.1111/manc.12045

Kai Lessmann (Contact Author)

Potsdam Institute for Climate Impact Research (PIK) ( email )

P.O. Box 601203
14412 Potsdam, Brandenburg
Germany

Robert Marschinski

Potsdam Institute for Climate Impact Research (PIK) ( email )

Telegraphenberg
Potsdam, Brandenburg 14412
Germany

Ulrike Kornek

Potsdam Institute for Climate Impact Research (PIK) ( email )

Telegrafenberg 31
Potsdam, Brandenburg 14473
Germany

Michael Finus

University of Bath

Claverton Down
Bath, BA2 7AY
United Kingdom

Ottmar Edenhofer

Potsdam Institute for Climate Impact Research (PIK) ( email )

P.O. Box 601203
14412 Potsdam, Brandenburg
Germany

Mercator Research Institute on Global Commons and Climate Change (MCC)

Torgauer Straße 12-15
Berlin, 10829
Germany

Technische Universität Berlin (TU Berlin)

Straße des 17
Juni 135
Berlin, 10623
Germany

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