Unanimous Climate Coalitions with Two-Level Pricing

35 Pages Posted: 5 Sep 2020 Last revised: 17 Mar 2022

See all articles by Achim Hagen

Achim Hagen

Humboldt University of Berlin

Christina Roolfs

Potsdam-Institut für Klimafolgenforschung (PIK); Technische Universität Berlin

Date Written: February 15, 2022

Abstract

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

Hagen, Achim and Roolfs, Christina, Unanimous Climate Coalitions with Two-Level Pricing (February 15, 2022). Available at SSRN: https://ssrn.com/abstract=3663860 or http://dx.doi.org/10.2139/ssrn.3663860

Achim Hagen (Contact Author)

Humboldt University of Berlin ( email )

Unter den Linden 6
Berlin, Berlin 10999
Germany

Christina Roolfs

Potsdam-Institut für Klimafolgenforschung (PIK) ( email )

Telegrafenberg 31
Potsdam, Brandenburg 14473
Germany

Technische Universität Berlin

Straße des 17
Juni 135
Berlin, 10623
Germany

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