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Symposium 2010

Proposal - Contingent Climate-Change Treaties

The Challenge

Climate change poses the serious challenge of carbon dioxide emission reduction. Emission control by developing countries is becoming a key for effective mitigation of climate change, as those count ...

Climate change poses the serious challenge of carbon dioxide emission reduction. Emission control by developing countries is becoming a key for effective mitigation of climate change, as those countries now account for more than a half of global emissions and are still expanding their energy infrastructure.

We probably can’t deal successfully with climate change without a strong international treaty limiting greenhouse gas emissions. But getting such a treaty is hard. One important reason is that reducing emissions is economically costly, but the costs of reduction are not publicly known. Thus, if a treaty negotiator proposes that country A reduce its carbon emissions by x%, that country may well object - especially if it is a developing country - that to do so would be prohibitively expensive -- and the negotiator would be hard pressed to prove the country wrong.

That is where a contingent treaty could help. Rather than specifying that developing country A should reduce by a specific amount, the treaty could offer country A a menu of choices, ranging from high reductions (with correspondingly high compensations, in the form of trade concessions or technology transfers) to low reductions (with low compensations). After signing the treaty, country A would then choose the option that best suited it. In fact, by making use of the mechanism design theory, one could design the treaty so that country A would choose the reduction level that it would have been assigned had reduction costs been publicly known in the first place.

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