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01.09.2011

Penalizing free-riders: game theory could help climate negotiators

All international efforts to reduce global greenhouse-gas emissions are hampered by "free-riding" countries. A new approach on how to deal with such countries is given by a study using economic game theory which is to be published in the Proceedings of the National Academy of Sciences this week. In the study, scientists from the Potsdam Institute for Climate Impact Research show how - at least on paper - a greater degree of international cooperation can be achieved.

Source: Potsdam-Institut für Klimafolgenforschung
"Free riders are countries which continue to emit CO2 without restraint, even when most members of the international community have committed themselves to emissions reductions," says Jobst Heitzig, lead author of the study. They benefit from climate protection which other states finance, for example through CO2-saving measures such as switching to renewable power sources. This in turn discourages other nations which want to tackle global warming - the fact that there are free riders makes it seem less worthwhile to take action themselves. This is one reason why game-theoretical studies have up till now rated the chances of achieving better cooperation in protecting the global climate as a particular public good "rather pessimistically," Heitzig says.

When, however, there is the threat that the international community will penalize deviations from emissions reduction targets, long-term international cooperation to protect the climate becomes more probable, according to the researchers: if one country emits more CO2 within a commitment period than agreed, then the other countries could deviate from their agreed targets to a particular degree in the following commitment period. "Then the free-riders could not count on others fulfilling climate protection obligations for them," says Heitzig. "They would have an incentive to make their own contribution".

Such a strategy would be flexible and dynamic - it would not terminate the cooperation, but would gradually change it, the reaction always being proportionate. In the short term the balance of emissions could worsen, but in the long term it would stabilize, the scientists calculate. In contrast to the long-discussed measure of imposing punitive tariffs - seen as problematic for the global economy - here the sanctions are anchored in the system of emissions reduction itself, for example through a temporary redistribution of emissions allowances.

However, Heitzig stresses that the analysis rests on "a whole set of assumptions". Firstly, game theory as used here assumes that all players act in a fundamentally rational way. Secondly, it assumes that the players all share the basic aim of climate protection. And thirdly, the model of international climate policy is considerably simplified. "The model study assumes that in the worst case the players will exhibit purely selfish behaviour in their long-term cost-benefit optimization."

Aside from the calculations of game theory, there are good reasons for states to play a leading role in climate protection. "They can be a model for others. And whoever is in the lead with re-designing their energy system has got good chances of being a technology leader internationally, too, and of profiting from exporting innovation," explains Hans Joachim Schellnhuber, director of PIK. "Game theory cannot give tactical guidelines in actual politics – but it can very well point out strategic options."

The study was carried out in the framework of the Potsdam Research Cluster for Georisk Analysis, Environmental Change and Sustainability (RROGRESS), collaboration between scientists from the geographic, climate and political sciences. Together they are developing concrete options for political and administrative decision makers in order to combat the risks of climate change more effectively. Within the PROGRESS research area Transdisciplinary Concepts and Methods, the approaches described in the present study will be developed further and applied to other areas of research.

Further Information:

http://www.pik-potsdam.de/members/heitzig/how-to-cooperate-in-the-emissions-game-and-other-repeated-public-good-games

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