Unanimous Climate Coalitions with Two-Level Pricing
35 Pages Posted: 5 Sep 2020 Last revised: 17 Mar 2022
Date Written: February 15, 2022
It is unlikely that countries will completely withdraw from their national climate policies when joining an international climate agreement. Therefore, we analyze the prospects of an international climate agreement in coexistence with sovereign national climate policies (two-level pricing coalition). We suppose that i) an international coalition and national governments price carbon and pass on revenues to households, and ii) the richest member is the largest donor of the coalition's revenues and, thereby, defines the coalition's carbon price, that satisfies the smallest common denominator rule. We find that the two-level pricing coalition leads to less stringent climate policies in each member country. However, it can compensate its less stringent climate policies with a larger coalition size when compared to the standard assumptions of joint welfare maximization. Thus, a two-level pricing coalition can perform better in global emission reductions and welfare improvements for member and outsider countries.
Keywords: Climate Change, Environmental Regulation, Multilevel Policy, Intl. Environmental Agreements
JEL Classification: C72, H77, Q58, H23, D62, H87
Suggested Citation: Suggested Citation