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Emissions Trading with Non‐signatories in a Climate Agreement—an Analysis of Coalition Stability
Author(s) -
Lessmann Kai,
Marschinski Robert,
Finus Michael,
Kornek Ulrike,
Edenhofer Ottmar
Publication year - 2014
Publication title -
the manchester school
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.361
H-Index - 42
eISSN - 1467-9957
pISSN - 1463-6786
DOI - 10.1111/manc.12045
Subject(s) - offset (computer science) , incentive , economics , emissions trading , welfare , stability (learning theory) , carbon offset , treaty , clean development mechanism , climate change , global warming , microeconomics , international economics , computer science , market economy , law , ecology , political science , machine learning , biology , programming language
We investigate how different designs of carbon offset mechanisms, like the K yoto P rotocol's C lean D evelopment M echanism ( 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.