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International Environmental Agreements: Emissions Trade, Safety Valves and Escape Clauses

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  • Larry Karp
  • Jinhua Zhao

Abstract

We explain how the structure of multi-national or multi-regional environmental agreements affect their chance of success. Trade in emissions permits has ambiguous and in some cases surprising effects on both the equilibrium level of abatement, and on the ability to persuade nations or regions to participate in environmental agreements. An escape clause policy and a safety valve policy have essentially the same properties when membership in environmental agreement is pre-determined, but they create markedly different effects on the incentives to join such an agreement. The two policies lead to a qualitative difference in the leverage that a potential member of the agreement exercises on other members. JEL classification numbers C72, H4, Q54

Suggested Citation

  • Larry Karp & Jinhua Zhao, 2010. "International Environmental Agreements: Emissions Trade, Safety Valves and Escape Clauses," Revue économique, Presses de Sciences-Po, vol. 61(1), pages 153-182.
    • Handle: RePEc:cai:recosp:reco_611_0153
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    References listed on IDEAS

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    1. Karp, Larry, 2008. "Correct (and misleading) arguments for using market based pollution control policies," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt8rw5801j, Department of Agricultural & Resource Economics, UC Berkeley.
    2. Hoel, Michael & Karp, Larry, 2002. "Taxes versus quotas for a stock pollutant," Resource and Energy Economics, Elsevier, vol. 24(4), pages 367-384, November.
    3. Hoel, Michael & Karp, Larry, 2001. "Taxes and quotas for a stock pollutant with multiplicative uncertainty," Journal of Public Economics, Elsevier, vol. 82(1), pages 91-114, October.
    4. Robert N. Stavins, 2008. "Addressing climate change with a comprehensive US cap-and-trade system," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 24(2), pages 298-321, Summer.
    5. Newell, Richard G. & Pizer, William A., 2003. "Regulating stock externalities under uncertainty," Journal of Environmental Economics and Management, Elsevier, vol. 45(2, Supple), pages 416-432, March.
    6. Karp, Larry & Zhang, Jiangfeng, 2006. "Regulation with anticipated learning about environmental damages," Journal of Environmental Economics and Management, Elsevier, vol. 51(3), pages 259-279, May.
    7. Stranlund, John K & Chavez, Carlos A, 2000. "Effective Enforcement of a Transferable Emissions Permit System with a Self-Reporting Requirement," Journal of Regulatory Economics, Springer, vol. 18(2), pages 113-131, September.
    8. Matthew McGinty, 2007. "International environmental agreements among asymmetric nations," Oxford Economic Papers, Oxford University Press, vol. 59(1), pages 45-62, January.
    9. Karp, Larry & Zhao, Jinhua, 2007. "A Proposal to Reform the Kyoto Protocol: the Role of Escape Clauses and Foresight," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt5b10v2jr, Department of Agricultural & Resource Economics, UC Berkeley.
    10. Malik, Arun S., 1990. "Markets for pollution control when firms are noncompliant," Journal of Environmental Economics and Management, Elsevier, vol. 18(2), pages 97-106, March.
    11. Stiglitz Joseph, 2006. "A New Agenda for Global Warming," The Economists' Voice, De Gruyter, vol. 3(7), pages 1-4, July.
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    Cited by:

    1. Gersbach, Hans & Hummel, Noemi, 2016. "A development-compatible refunding scheme for a climate treaty," Resource and Energy Economics, Elsevier, vol. 44(C), pages 139-168.
    2. Etienne Inedit Blaise Tsomb Tsomb & Henri Ondoa Atangana, 2023. "Multilateral environmental agreements and the growth of total factor productivity in developing countries: evidence from the foreign direct investment channel," Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, Springer, vol. 25(11), pages 12965-12997, November.
    3. Gersbach, Hans & Hummel, Noemi, 2011. "Climate Policy and Developing Countries," CEPR Discussion Papers 8685, C.E.P.R. Discussion Papers.

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    More about this item

    Keywords

    Kyoto Protocol; escape clause; emissions trade; cost uncertainty; participation game; International Environmental Agreement;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • H4 - Public Economics - - Publicly Provided Goods
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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