“We have to recognize that international approaches to climate change have basically failed. They are not going anywhere, maybe even backwards,” said economist William Nordhaus at a lecture for IIASA staff and young scientists on 23 June. The reason for this failure, he argued, is that international agreements have so far failed to deal with the problem of free riders.
The Kyoto Protocol, for instance, failed as countries dropped out one by one, as soon as mitigation started to become costly. Many countries never even ratified the agreement. Nordhaus explained, “There were no penalties for dropping out.”
As the next round of climate talks approach this winter and next in Paris, many researchers say it is time for a new model for international climate change treaties. One new idea, which Nordhaus first proposed at the IIASA 40th Anniversary Conference in 2012, is the concept of “climate clubs.”
Nordhaus said, “Think of the treaty as a club. It’s a voluntary agreement, where members get certain benefits, for a certain cost.” A climate club would work like a free-trade union, such as the EU. It would encourage participation by penalizing non-participants, allowing members of the “climate club” to charge tariffs on all imports of non-participating nations. In his lecture on Monday, Nordhaus expanded on the concept he introduced in 2012, presenting the results of modeling work to determine the tariff rates and carbon prices that would be needed in such an agreement, and how participation would look.
Nordhaus found that more countries were likely to participate when carbon prices were lower. At a carbon price of 25 or 50 dollars, a majority of world regions would participate in the club, while at higher carbon prices of 75 to 100 dollars per ton of carbon dioxide, the highest participation rate would be only about half of that.
The high carbon price, Nordhaus explained, would make the cost of participating much higher than the costs of tariffs for non-participants. However, with a lower carbon price, even low penalty tariffs of 3 to 4% could be enough to encourage participation. The idea of tariffs is simpler than previous suggestions of trade penalties based on the carbon emissions impact of specific goods—which in practice are difficult to define, and, as Nordhaus said, “not a big enough stick to induce participation.”
Like any trade agreement, though, Nordhaus’ climate club also means some win and some lose. When he examines the benefits on a regional level, the US, EU, and India appear to gain the most benefits, while Russia and China gain the least. What would it take to get such an agreement off the ground? Nordhaus said that a few key regions would be enough—for example, the EU, the USA, and China.
Watch Nordhaus’ 2012 Lecture at the IIASA Conference
William Nordhaus is Sterling Professor of Economics at Yale University, New Haven, Connecticut, USA. He has a B.A. from Yale University (1963) and a Ph.D. in Economics from MIT (1967). More>>