Why climate agreements don't work
Exploring the game theory behind climate agreements to understand why they generally are not effective, and what we can do to fix it.
Note: This was originally published on Medium in 2015, but I’m republishing it with slight updates in honour of the USA rejoining the Paris Climate Agreement.
Let’s face it: world leaders have a really poor track record when it comes to taking climate action, as this 83 second video cutely summarizes. On a more personal level, I think most people (including politicians) would agree that climate change is one of the most pressing dangers threatening modern society, but if I asked them what they do to combat it, they probably couldn’t come up with much. Why is this so? How do we explain this seemingly paradoxical behaviour? Game Theory, the branch of economics that studies strategic decision-making, might help us here.
Under an economics lens, the global environment is the ultimate public good. Everybody “consumes” it at the same time and it’s not possible to exclude anyone from it. The problem that occurs with all public goods is free riders — the proper term for those who reap the benefits of these public goods without paying the cost. In particular, international climate agreements suffer from incentives to free-ride and end up simply lowering targets when a country bails. Reducing carbon emissions generally comes at the cost of economic growth [*]. However, the benefits of the reduced emissions are enjoyed by everyone — even those who did not pay the cost of sacrificed economic growth.
To further understand this dilemma, perhaps an example will be illuminating. Pretend you are Canada’s delegate at an international climate conference and you have to advise PM Trudeau on a course of action. If all other nations stay true to their commitments, it is best for us to forgo our promises and enjoy the benefits of their lower emissions; if no other nation delivers on their commitments, then it is futile for us to do so since everyone else will simply enjoy the fruits of our economic sacrifice. Therefore, it is in each nation’s best interests to not comply with international climate agreements no matter what the other nations do. Non-compliance is the dominant decision in this “dynamic climate change game”, and this position is known as the Nash equilibrium of the system (named after Dr. John Nash portrayed by Russell Crowe in The Beautiful Mind).
This theory has played out many times in history, most recently with the failed Kyoto Protocol, which aimed for a 5% reduction in emissions, but instead concluded in a 58% increase as countries dropped out or simply ignored their pledges. The consequences of a game theory analysis of climate change negotiations are grim. This type of situation is commonly known as “The Tragedy of the Commons” — a situation in which all players act independently and in self-interest but behave contrary to the best interests of the group as a whole by overusing a public good.
Thankfully, all is not lost. Research and experimentation shows that repeating the game enough times will assure co-operation among the players as they see the effects of mutual destruction caused by their behaviour. The more time passes, the more countries are affected negatively from climate change and might return to the negotiating table with renewed interest. A more promising strategy put forth by this paper involves self-enforcing to deter free-riding. Since there is no strong global government (the UN is too weak to count) to dole out punishments for non-compliance, we must “redistribute liability according to past compliance levels in a proportionate and timely way”. Building in self-enforcement clauses into the agreement will definitely give it more teeth.
One important ethical issue to note with emissions reduction is recognizing the privilege of developed countries in having the ability to make this choice. While developed nations cut back emissions, is it fair to tell the rising developing nations around the world that they cannot burn any more coal or gas to lift their people out of poverty? The developed nations went through over a century of burning fossil fuels to bring their economies to where they are today and are responsible for the majority of carbon in the atmosphere—don’t developing nations deserve the same opportunity?
On a more personal note, this analysis can also be applied to individuals. Living more sustainably involves costs: a personal one (e.g. giving up meat), as well as an economic one (e.g. buying an electric vehicle). Since the full benefits of sustainable choices are shared among everyone and often not felt directly by the individual, the equilibrium position is to encourage others to live sustainably but not incur the costs of doing so yourself. Combating this involves recognizing that it’s happening and then acting selflessly to practice what you preach, even if you gain no direct benefits.
Sustainability seems like the obvious choice, but it is important to see the competing incentives and forces that are in play for all of us. Hopefully, a basic understanding of the game theory can lead to increased cooperation and better decisions for our future.
[*] 2021 update: Decarbonizing is increasingly happening without an economic tradeoff and in some cases even results in jobs and economic growth. This is great news and will make it much less likely that we fall into a Tragedy of the Commons trap.