Long-Term Climate Treaties with a Refunding Club

Hans Gersbach, Noemi Hummel () and Ralph Winkler
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Noemi Hummel: ETH Zurich

Environmental & Resource Economics, 2021, vol. 80, issue 3, No 2, 552 pages

Abstract: Abstract We show that an appropriately-designed “Refunding Club” can simultaneously solve both free-riding problems in mitigating climate change—participating in a coalition with an emission reduction target and enduring voluntary compliance with the target once the coalition has been formed. Countries in the Club pay an initial fee into a fund that is invested in assets. In each period, part of the fund is distributed among the Club members in relation to the emission reductions they have achieved, suitably rescaled by a weighting factor. We show that an appropriate refunding scheme can implement any feasible abatement path a Club wants to implement. The contributions to the initial fund can be used to disentangle efficiency and distributional concerns and/or to make a coalition stable. Making the grand coalition stable in the so-called “modesty approach” requires less than 0.5% of World GDP. Finally, we suggest ways to foster initial participation, to incorporate equity concerns with regard to developing countries, and ways to ease the burden to fill the initial fund.

Keywords: Climate change mitigation; Refunding club; International agreements; Sustainable climate treaty (search for similar items in EconPapers)
JEL-codes: H23 H41 Q54 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (4)

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DOI: 10.1007/s10640-021-00597-3

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