The 13th annual Conference of the Parties recently concluded in Bali, with the adoption of a new "roadmap" for the negotiations that will lead to a successor to the Kyoto Protocol. As we contemplate a post-2012 future, it's worth reflecting on some basic economic concepts in order to better understand what it will take for that map to truly show us a way forward.
The negotiators in Bali were trying to provide what economists call a public good. To prevent atmospheric concentrations from rising, a substantial number of countries must act together. It is the total sum of emissions that affects concentrations, not the amounts emitted by individual countries. So each country has an incentive to let others act - one of the reasons so little has been achieved so far.
If each country's climate were shaped only by its own emissions, and not by the total of every country's emissions, the incentive would be different.
For example, national defense is a national public good. It is public in two senses. First, "consumption" of the good by one person does not reduce the amount available to others. Second, no citizen can be excluded from enjoying the benefit of national defense. This second attribute is particularly important: if beneficiaries do not have to pay, then why should they pay? But if no one pays, then the good won't be provided - and everyone will be worse off.
This, then, is why government exists, to get around the free rider problem, to supply public goods. Other examples of domestic public goods include clean air and water and the preservation of unique natural wonders.
But what about global public goods like climate change mitigation, nuclear non-proliferation, and disease eradication? These are harder to supply for the simple reason that there is no world government but instead, 192 nation states. To supply these public goods, a different approach must be tried.
Imagine that we learned that the Earth will be hit by a massive asteroid 25 years from now. If nothing were done to avert the collision, Homo sapiens will almost certainly become extinct. Engineers tell us that there are a variety of ways in which the asteroid's orbit could be altered. All it would take is a single best effort. Could we be confident that the money needed to deflect the asteroid would be raised?
The answer, fortunately, is yes. The incentives to act are so strong that we can be sure that the only real constraint on our ability to supply the global public good of asteroid protection is technical feasibility. Indeed, it would be in the interests of a single country to supply this global public good all by itself. International cooperation would not even be needed.
Perhaps the greatest global public good ever provided was the eradication of smallpox. When the world began this audacious effort, over a million people died every year from smallpox. Almost all of these people lived in poor countries, but the rich countries also gained from eradication. This is because the vaccine that offers protection from smallpox is costly and dangerous. Once the disease was eradicated, the need to vaccinate evaporated. Everyone gained.
What is novel about this global public good is that its supply requires the active cooperation of every country; success depends on the weakest link. The last case of endemic smallpox occurred in Somalia in 1977. Had this person not been isolated, had the people with whom he had come into contact not been vaccinated, and so on, smallpox would still be with us today.
Back then, Somalia had a government that could help in this effort. But in 1991, that government fell in a coup, and ever since, Somalia has been a "failed state." It is interesting to speculate whether smallpox could be eradicated today. I think the chances are good that it could not happen. Indeed, one of the reasons polio eradication has yet to succeed is that wild polioviruses still reside in trouble spots like the border region shared by Afghanistan and Pakistan.
Climate change mitigation is the hardest global public good to supply. In contrast to asteroid protection, it cannot be addressed by one huge project. Unlike eradication, it is not in the interests of each country to contribute, so long as all other countries do so. For climate change, the incentives are more challenging: success depends on the aggregate efforts of all countries.
An agreement to reduce greenhouse gas emissions must do three things. First, it must attract wide participation. Even the United States and China, the two largest emitters, are each responsible for no more than a quarter of the total problem. Also, should only a few countries act, carbon-intensive industries will likely shift production to other countries, causing their emissions to rise.
Unfortunately, the Kyoto Protocol has failed to attract wide participation. True, China is a party; but China is not required to reduce its emissions. The United States, of course, is not a party. Kyoto is a failure if only because it has not provided incentives for both countries to change their behavior.
Second, the treaty must also provide incentives for compliance. Canada's emissions currently exceed the Kyoto limits by over 30 percent and are expected to rise even further. When a country like Canada, a Kyoto signatory and an upstanding member of the international community, fails to comply, then you know there are problems with the agreement itself. Kyoto provides no incentives for Canada to comply, just as it provides no incentives for the United States to join.
Finally, the treaty must get all countries to reduce their emissions by a very substantial amount - eventually by half and soon after that by much more. Even if Kyoto were implemented to the letter - if the United States were to ratify and all parties were to comply perfectly - global emissions would keep on rising.
In Bali, efforts were made to get the industrialized countries to accept much tougher targets. This would go some way towards meeting the third requirement, but it will make no difference at all if the first two requirements are not also met. This has been the problem with the climate negotiations so far: they have avoided the hard but essential challenge of enforcement. Without that, targets are meaningless.
Lacking a world government, global public goods must usually be provided by international cooperation. The world has succeeded before - in eradicating smallpox, in vanquishing the axis powers, in preventing nuclear war, and in protecting the ozone layer. There are reasons for this. They have to do with incentives and the ability of international institutions to change them. Climate change is a harder problem, but we will not make any progress in addressing it until we understand this. That is the main lesson to be learned from the study of global public goods.
Views expressed are those of the author. RFF does not take institutional positions on legislative or policy questions.
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Barrett, Scott. 2007. Why Cooperate? The Incentive to Supply Global Public Goods, Oxford University Press.
Barrett, Scott. 2005. Environment and Statecraft: The Strategy of Environmental Treaty-Making, Oxford University Press, (paperback edition).
Aldy, Joseph E. and Robert N. Stains, eds., 2007. Architectures for Agreement: Addressing Global Climate Change in the Post-Kyoto World. Cambridge University Press.
Stern, Nicholas, 2007. The Economics of Climate Change: The Stern Review. Cambridge University Press.
Schelling, Thomas C. "Climate Change: The Uncertainties, the Certainties and What They Imply About Action," The Economists' Voice: Vol. 4: Iss. 3, Article 3. Available at: http://www.bepress.com/ev/vol4/iss3/art3