Document Type

Discussion Paper

Publication Date

5-25-2021

CFDP Number

2286

CFDP Pages

28

Journal of Economic Literature (JEL) Code(s)

Q5, Q54, C6, H4

Abstract

A proposal to combat free-riding in international climate agreements is the notion of a “climate club” or coalition of countries to encourage high levels of participation. Empirical models of climate clubs in the early stages relied on the analysis of single-period coalition formation. The results suggested that there were limits on the potential strength of clubs and that it would be difficult to have deep abatement strategies in the club framework. The current work extends the single-period approach to many periods and develops an approach analyzing “supportable policies” to analyze multi-period clubs. The major surprise of the study is the interaction between the club structure and rapid technological change. Neither alone will produce incentive-compatible policies that can attain the ambitious objectives of international climate policy. The trade sanctions without rapid technological decarbonization will be too costly to produce highly costly abatement; similarly, rapid technological decarbonization by itself will not induce deep abatement because of country free-riding. But the two together can achieve the international objectives.

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