Rethinking climate agreements: self-enforcing strategies for emission reduction through sanctions

Abstract

Although climate change is expected to cause significant negative impacts, climate treaties give hope for reducing greenhouse gas (GHG) emissions, potentially leading to less severe climate change. However, climate change is a public bad: If each country aims to maximize its own benefit, some countries might free ride and continue to emit GHGs. Consequently, climate treaties have seen limited success, and a central question is how future treaties can achieve GHG emission reduction and also be ‘self-enforcing’—where participating countries have no incentive to withdraw or modify their contributions. Here we examine a dynamic negotiation process involving multiple countries, each deciding whether and when to join the agreement and whether to penalize non-participants. In particular, we distinguish between (1) indirect punishment, in which countries invest less in emission reduction in response to non-compliance of other countries, and (2) direct punishment, in which countries impose sanctions, such as punitive tariffs, against countries that do not comply. We analyze the negotiation process using evolutionary game theory. We show that how the two types of punishment are implemented greatly affects the agreement’s outcome. In particular, an efficient combination of the punishments could lead to more desirable self-enforcing agreements. These findings indicate that integrating punitive measures with an effective negotiation framework could result in more desirable climate agreements.