“The international community is under enormous pressure to achieve successful results at the climate conference in Glasgow. The central question is whether it will be possible to translate the self-imposed goals from the Paris Climate Agreement into concrete and effective measures to avoid global greenhouse gas emissions in a timely manner. Instead of relying solely on the signatory states to gradually increase their climate change mitigation contributions, from an economic point of view the principle of reciprocity should become more central. Establishing a climate club can be the right approach,” says Professor Martin Kesternich, deputy head of the ZEW Research Department “Environmental and Resource Economics, Environmental Management”.
A climate club relies on international cooperation to solve the problem of ensuring climate protection. The member states agree on a CO2 price and thus create an incentive for greater emission reductions. At the same time, they negotiate exclusive benefits among themselves, such as free trade agreements or financial incentives for lower emissions. As studies have shown, such positive incentives to cooperate are even more effective than punishment for non-cooperation.
The current practice of gradually increasing country-specific climate protection targets (ratcheting) merely relies on the hope that emission reductions will become more ambitious in the future. However, it remains unclear what incentives ratcheting actually creates in international climate protection.
“From an economic point of view, the ratcheting mechanism does not change the underlying incentive problem. On the contrary, this mechanism can even prove detrimental. Countries that are actively engaged in climate protection continue to bear the costs alone, while all countries benefit from the reduced emissions. As a result, countries are tempted to contribute little or nothing to climate protection. Our experimental economic study on this topic even shows that ratcheting has a negative effect. Countries with ambitious goals have been shown to curb their ambition in order to prevent being free-ridden by others,” says ZEW Research Associate Professor Bodo Sturm from HTWK Leipzig.