Geoscience Reference
In-Depth Information
global optimal carbon price of CO
2
in 2020. If every country considers
only its own benefi ts in its calculations, the noncooperative globally
averaged carbon price would be about one-tenth of the global opti-
mum.
The nationalist dilemma also has implications for the implementa-
tion of agreements. Not only do countries have strong incentives to ride
free by not participating or taking minimal policies, but they also have
incentives to cheat if they do join strong climate-change agreements. If
they hide emissions or overstate their reductions, their own economic
welfare will improve even though the welfare of other countries will
deteriorate. Suppose that country B has agreed to reduce its emissions
to the point where the marginal costs are $25 per ton. This is a fi ne out-
come for the world, but from country B's point of view, it has a net cost
of $20 per ton. So country B has strong incentives to overstate its abate-
ment and to pretend that it is keeping its promises.
3
While the nationalist dilemma is an intrinsic diffi culty in global
warming policies, it is not fatal. Some countries have joined in coopera-
tive agreements to overcome the tendency to underinvest in over-
coming global externalities. The agreement to phase out ozone-depleting
chemicals is an example where free-riding tendencies were overcome.
The answer to the dilemma is to establish penalties on nonparticipants
that overcome the tendency to ride free. I discussed one possible ap-
proach in Chapter 21, in which a climate treaty buttressed by trade sanc-
tions could overcome the nationalist dilemma.
PRISONERS OF THE PRESENT
The nationalist dilemma is amplifi ed by a second factor, the time-
distant nature of the payoffs from emissions reductions. Climate-change
policies require costly abatement in the near term to reduce damages
in the distant future. A rough estimate, discussed in Part IV, is that the
benefi ts of reductions come about half a century after the emissions
reductions.
Figure 44 illustrates the generational trade-offs, based on the emis-
efi ts for early and late periods, for three groups of countries and the
