# Is the international economic system too chaotic to "work towards" carbon emission reduction

I often get frustrated when I read calls to action on climate change. It goes something like this: "Solutions are within reach - but we must act now!"

If one assumes that the international economic system is chaotic and reactive, and that no one is in charge, where is the theory to back up what seems to be a wild claim that "we can act". Who are "we", and are markets even able to deal with information about the common good or the future.

Suggestions for further reading on relevant theory would be appreciated.

There are already precedents that show the international capacity is there, technically, and economically to deliver the carbon reduction necessary, in time. And there are indications that the political will to do so is growing to sufficient levels, too.

Firstly, with the number of participating nations being 195 (the UNFCCC nation parties), that's about the right size to create a management group that prevents the destruction of the commons, despite the short-run market incentives being ones that would otherwise lead to such destruction: see the Nobel-winning work by Elinor Ostrom for lots of information on this - I highly recommend it, it's a very good read. This addresses the aspect of your question about whether the market can accommodate information about the common good and the future.

Secondly, there are already examples of individual nations putting primary legislation in place, and acting on it: the UK's Climate Change Act was the first such law in a major industrialised nation; other countries have done similar.

Thirdly, there are already examples of nations collaborating on global environmental problems successfully: the international action to reduce emissions of ozone-destroying chemicals, the Montreal Protocol, is working.

And fourthly, the COP21 Paris Agreement showed unanimity among the 195 nations plus the institution of the EU in the need to address this problem. Pause for a moment to consider the enormity of that. The Paris Agreement wasn't just approved by majority consensus, but unanimously by all 195 countries.

All of these things happened within the context of the international economic system. So it's certainly not a barrier.

And we know that the economic incentives to prevent catastrophic climate change far outweigh the costs of doing so, at any sane discount rate. However, there is a principal-agent problem, and decades of lag between cause and full outcome; therefore market mechanisms alone cannot be sufficient. But there are no pure market economies - it's all a blend of private and public agents - so that's only a hindrance, but not a barrier.

• "We know that the economic incentives to prevent catastrophic climate change far outweigh the costs of doing so, at any sane discount rate" Do you have a source for this?
– Dole
Jan 4 '16 at 9:27
• @Dole yup, several hundred peer-reviewed pieces of work. I recommend that you start with the IPCC summaries, and work from there. Jan 4 '16 at 9:28
• I read the summary for policymakers and did not find policy suggestions, nor any cost/benefit analysis. Do you have any papers more directed towards the economics?
– Dole
Jan 4 '16 at 9:40
• Yes, you'll need the detailed working group reports, rather than just the summary for policy makers. Same link as above. See also work by various folk (including some of my colleagues): Chris Hope, Nick Stern, Mark Z. Jacobson, Paul Ekins. Jan 4 '16 at 9:44
• The Montreal Protocol stands alone as a huge success story among many failed attempts at reaching environmental action consensus. Perhaps it's also slightly misleading to mention Montreal because it dealt with a far smaller, even minuscule problem, compared carbon emissions control. Paris agreement is non-binding, so it's really just 2% of the battle that's been won. Watch governments get kicked out when they try to implement, and people get upset about loosing they SUVs and pickup trucks. Jan 5 '16 at 1:34

I'll partially answer this question, by pointing out that this is a classic prisoner's dilemma issue.

Two members of a criminal gang are arrested and imprisoned. Each prisoner is in solitary confinement with no means of communicating with the other. The prosecutors lack sufficient evidence to convict the pair on the principal charge. They hope to get both sentenced to a year in prison on a lesser charge. Simultaneously, the prosecutors offer each prisoner a bargain. Each prisoner is given the opportunity either to: betray the other by testifying that the other committed the crime, or to cooperate with the other by remaining silent. The offer is:

• If A and B each betray the other, each of them serves 2 years in prison
• If A betrays B but B remains silent, A will be set free and B will serve 3 years in prison (and vice versa)
• If A and B both remain silent, both of them will only serve 1 year in prison (on the lesser charge)

In the prisoner's dilemma - in a single instance of the game and assuming no collaboration between the prisoners and assuming no other costs (ie. you're not going to be shamed for being a snitch), the best move is to betray the other.

• If the other has chosen to betray you, you get two years instead of three
• If the other has chosen not to betray you, you get zero years, instead of one.

However, in the long run (ie a series of repeated games), it makes sense that prisoners should cooperate, each opting for a series of one year sentences, rather than a series of two and three year sentences.

The scenario for climate change is the same.

Choosing to cooperate in solving the climate change has a cost for a given country (restrictions on their economic growth, unhappy business constituents), and there is also a reward (avoiding catastrophic climate change). The decision matrix for a single country looks like this:

                | Rest of world coooperates | Rest of world doesn't cooperate|
-----------------------------------------------------------------------------
Cooperate       | Pay economic cost         | Pay economic cost              |
| No catastrophe            | Catastrophe                    |
-----------------------------------------------------------------------------
Don't cooperate | Don't pay economic cost   | Don't pay economic cost        |
| No catastrophe            | Catastrophe                    |


The important thing to note here, is that the best outcome from the perspective of an individual country is that they don't cooperate on climate change, but the rest of the world does.

And it's worth mentioning, that it is the position of many countries in the world that they shouldn't have to pay the full economic cost. Typically the argument is that poorer countries like African nations and India have not yet developed their economies to the same extent that rich western nations have, and that a completely equal reduction emissions would stifle that development.

But the scenario where the whole world doesn't cooperate is much worse the scenario of paying the cooperate cost, and avoiding the catastrophe.

Individual countries can use this knowledge to leverage themselves a lesser obligation to climate change targets.

That is - an individual country knows that every other country values avoiding catastrophe more than the cost to pick up the slack of this individual country.

So you can have a situation where some countries are going to free ride on the cooperation of the other countries, in order to get this most beneficial position of avoiding catastrophe, as well as not paying the economic cost.

There are few things the other countries can do in response:

• Not cooperate themselves, in a technique called brinksmanship. Because this opens the possiblity of catastrophe, the original country may agree to start cooperating in order to avoid the the much worse alternative of catastrophe.
• Find other ways to punish the country for not cooperating. eg. exclude them from trade agreements.
• Suck the cost up.

The problem is not that the global economy is too chaotic. It is that people have different interests. And that is no wonder because for many countries the utility of using carbon most likely exceeds the utility of fighting climate change. And in fact, a case could be made that for some countries the atmospheric carbon and a warmer environment may be beneficial.

• The cost of fighting climate change actually exceeds the utility of using carbon. Only economic agents fail to perceive this and dismiss global warming as insignificant. See Martin Weitzman's work on this topic : scholar.harvard.edu/files/weitzman/files/… Jan 4 '16 at 9:59
• @Hector Certainly not for every agent. Also "fighting climate change" is not a well defined term. Is that spending 100 billion on it? 500 trillion? Banning oil? All of those procedures would have vastly different results to climate change and GDP growth/utility. I was talking about a theoretical policy X and why different agent may not agree upon it.
– Dole
Jan 4 '16 at 10:56
• @Hector I read the paper and while being very interesting mathematical exercise, that's the extent of it. Using the same model I could prove that the social cost of not building 10 trillion dollar asteroid defense matrix is infinite. However, the model might or might not match reality (and in the paper they consider the infinite scenario an absurdity).
– Dole
Jan 4 '16 at 12:12
• I don't think that such expensive asteroid defense is comparable with climate change... The later is well documented, and its potential harm and probability can be measured more precisely than that of an asteroid destructing earth. The purpose of Weitzman's article is to show that we under-estimate the future cost of climate change, and thus that we are under-investing today to curve it. Having considered that, I agree with you that different agents in different regions might expect different outcomes from climate change, and that they therefore have no incentive to act in concert. Jan 4 '16 at 12:44
• @Dole I don't disagree that we are far more adept at predicting climate than movement of astronomical objects. Yet still (and partly because of), an asteroid strike is an exceedingly small probability with a very high impact more certainly than greenhouse gas based anthropogenically caused climate catastrophe is. Thus I would say such occurrence is more relevant to the message of the paper, not less. This might warrant a new question item regarding the mechanics of dismal theorem.
– Dole
Jan 4 '16 at 13:14

The chaos of the international economic system is certainly no obstacle to carbon emission control. In its crudest form, environmentalism can achieve its goals simply by destroying capital or hindering capital accumulation, which is basically the point of most environmental regulation.

• Is it possible that environmental regulations simply shifts capital output in a new direction. So it's not purely destructive. When you refer to "the point" of environmental regulation, do you mean "the motivation". Jan 5 '16 at 14:56
• No most of the time polluting plants are just outlawed and demolished. Jan 6 '16 at 4:52