Burden Sharing and Self-Enforcing Climate Agreements

Abstract

This study analyzes self-enforcing climate agreements in a repeated-game framework in which asymmetric countries emit greenhouse gases over time. In particular, we consider a novel burden-sharing scheme that makes an agreement self-enforcing even when a relatively less patient country participates in the agreement. The long-term stable emission quota that makes the agreement self-enforcing for the largest set of discount factors equalizes the compliance thresholds across countries. We then show that the long-term stable quota satisfies grandfathering as an equity criterion when countries are asymmetric. This implies that low-emitting countries that have developed clean technologies will be reluctant to agree to the scheme, while countries that have invested in adaptation and brown technology are likely to accept the emission quota. Furthermore, an ambitious target level deteriorates the compliance incentives of countries that are allowed to have low emission reduction rates.