A Proposal to Reform the Kyoto Protocol: the Role of Escape Clauses and Foresight

Larry S. Karp and Jinhua Zhao
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Jinhua Zhao: Iowa State University

No 1050, Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series from Department of Agricultural & Resource Economics, UC Berkeley

Abstract: A reform to the Kyoto Protocol that allows signatories to pay a fine instead of meeting the target level of abatement would achieve three goals. First, it would defuse one U.S. objection to the agreement: the concern that the cost of achieving the target might turn out to be extremely high. Second, unlike other cost-reducing measures (such as trade in pollution permits) it would increase the equilibrium number of signatories in a non-cooperative participation game. Third, it would make it easier to force signatories to comply with their obligations. We study the participation game under an escape clause using both a Nash Equilibrium and the concept of a stable set when nations are "farsighted". We compare our results to a prominent model of International Environmental Agreements (IEAs) which finds that the equilibrium size of an IEA tends to be small when the benefits of cooperation are large. We show that with an escape clause and a properly chosen level of fine, a large IEA can be formed even when the benefits of cooperation are large.

Keywords: Kyoto Protocol; escape clause; cost uncertainty; participation game; International Environmental Agreement; stable set with farsight; coalitional games (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ene, nep-env, nep-geo, nep-sea and nep-tra
Date: 2007-02-23
Note: oai:cdlib1:are_ucb-1187
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