Global Climate Change Mitigation: Strategic Incentives

Abstract

Central to global agreement on carbon emissions are strategic interactions amongst regions over carbon tax implementation and the benefits to be shared. These are re-examined in this paper, in which benefits from mitigation stem from a meta-analysis that links carbon concentration with region-specific measures of economic welfare. Implementation costs are then drawn from a highly disaggregated model of global economic performance. Multiplayer games are then constructed, the results from which are sensitive to embodied temperature scenarios and discount rates but robustly reveal that the US and China would be net gainers from unilateral implementation in net present value terms. The dominant strategy for all other countries is to free ride. Net gains to the three large economies are bolstered by universal adoption, which could be induced by affordable side payments. Yet the revealed downside is that net gains to all regions are negative for at least two decades, rendering commitment to abatement politically difficult.