Tuesday, March 03, 2009

Mitigation contagion

An issue I have addressed in some of my recent research is whether having an additional country commit to mitigating their carbon emissions increases the pressure on or improves the net rewards to other countries if they mitigate.  Is the incentive to mitigate contagious? In the game theory models I have been working with there are mixed messages. On the one hand if a large country mitigates the possibility of global carbon leakages* diminishes since footloose carbon intensive industries are unlikely to move to that country but, on the other hand, holding out by not mitigating has appeal - if it holds out and does not mitigate a country gets all the carbon leakage benefits from those who do mitigate. 

From this sort of perspective the only contagion induced by a small country like Australia committing to mitigate is limited to moral effects - countries might not like to be identified with an increasingingly small group of bad guys who do not mitigate.  These moral effects - described in behavioural game theory - might be a non-negligible force - people and nations will often cooperate and behave as good citizens if they see others doing so and wish to share in a sense of doing the right thing.

A decisive event that many of us have long looked for is a specific decision to move to a low carbon economy in the US.  Most researchers see the decision of the US to mitigate as a necessary though not sufficient condition for other countries to enter into a comprehensive global carbon agreement. That seems to be happening thanks to the role of President Barack Obama.  This, according to the NYT, has created a wave of interest globally in pursuing mitigation.

The current economic difficulties provide a stress but overall the prospects for reaching a global agreement in Copehagen this year seem to have improved a smidgeon. Good.

* Loosely these refer to costs to a mitigating country and gains to a non-mitigating country that arise from the costs of GGE control. These might make vthe exports of the non-mitigating country more competitive and create a case for industry location shifts toward the non-mitigating country.

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