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Essays on international environmental cooperation

Authors Hong, Fuhai
Issue Date 2011
Summary International environmental cooperation is gaining more and more importance in a world with global climate change. The problem of climate change is caused by emissions of Greenhouse Gases (GHG). With transboundary GHG pollution, however, there is currently no a world government that is able to force polluters to take into account the damage cost of other countries caused by their pollution. This differentiates international environmental cooperation from the issue of domestic environmental regulation in which a regulator is present. This thesis contains three chapters that study international environmental cooperation. The first two chapters are game-theoretic analyses, while the third one is empirical. A significant reduction in global GHG emissions requires (i) cooperation of countries in emission abatement and (ii) the development of technology. Chapter 1 covers both topics (i) and (ii). Chapter 2 investigates the implications of climate policymaking for the development of abatement technology in small countries. Chapter 3 is concerned with the effect of an important climate treaty – the Framework Convention of Climate Change. Abatement of GHG emissions is a global public good. An international environmental agreement (IEA) is a coalition mechanism that aims to overcome the free-riding problem underlying this public good game. Much of the IEA theory relies on a particular type of participation game in which countries individually decide whether to join or stay out of an IEA and the resulting IEA makes abatement decisions for its members. Chapter 1 modifies the canonical model that is used to study IEAs, considering both mixed and pure strategies at the participation stage, and including a prior cost-reducing investment stage. The use of mixed strategies at the participation stage reverses a familiar result and also its policy implication: with mixed strategies, equilibrium participation and welfare is higher in equilibria that involve higher investment. Nations’ use of mixed rather than pure strategies creates endogenous risk; the equilibrium participation probability increases with risk aversion. The previous literature on climate policy pays insufficient attention to the role of small countries, which, in the aggregate, account for a substantial proportion of the global GHG emission. Chapter 2 investigates how alternative climate policy instruments and learning about environmental damage affect ex ante investment in the adoption of technology in small countries. I consider three policy instruments that are widely discussed in the current debate on climate policymaking: emission standard, harmonized taxes and auctioned emission permits. I identify and discuss three effects that reduce investment efficiency: the effect of uncertain participation, the strategic effect on participation and the strategic effect on regulation. Either with both learning and quadratic abatement costs or without learning, harmonized taxes outperform emission standard and auctioned permits in terms of investment efficiency. Interestingly, when learning is infeasible, a large cost of staying out of the international environmental agreement could be beneficial. Whether or not learning improves investment efficiency depends on the size of this nonparticipation cost. The IEA theory is generally pessimistic regarding the chance of a treaty with legally-binding restrictions in solving the climate change problem. A natural question thus arises: how about a climate treaty without legally-binding restrictions? Chapter 3 aims to answer this question using a real world example. Before 2005 when Kyoto Protocol was put into force, the Framework Convention of Climate Change (FCCC) did not impose any legally-binding restrictions on GHG emissions. Carbon dioxide is a main GHG. In Chapter 3, I investigate the effect of FCCC membership on countries’ carbon emissions during the period of 1992-2004. I find out positive and significant effects of FCCC membership on the control of carbon emissions in the Annex I (industrialized) countries. Although a number of non-Annex I countries were attracted to the FCCC, the FCCC membership had no significant impacts on the carbon emissions of these non-Annex I countries. This fact highlights the canonical tradeoff of extensive margin and intensive margin in coalition formation.
Note Thesis (Ph.D.)--Hong Kong University of Science and Technology, 2011
Language English
Format Thesis
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