Durban and the Climate-Change Conundrum

Durban and the Climate-Change Conundrum

A consensus on climate-change policy would benefit everyone. So why is it so hard to reach?

Negotiators in the latest round of climate-change talks at Durban have set expectations so low that they can hardly fail to exceed them. The best hope is a second agreement under the Kyoto protocol, whose initial commitment ends in 2012, and even that seems unlikely. The possibility of a new accord, seemingly within reach in the lead-up to the Copenhagen conference in 2010, has faded. Yet the problem of climate change has not faded away, and most of the news since 2010 has been bad.

The failure of climate negotiations is unwelcome for everyone concerned with the future of the global environment, but it also raises fundamental questions about the nature of international negotiations and the standard theories used to analyze them. From a theoretical viewpoint, failure of climate negotiations is unsurprising. But the way in which negotiations have stalled contradicts the most popular models of such processes.

Climate negotiations can be seen as a collective-action problem of the kind first popularized by the late Mancur Olson. While it is in the interest of every nation to reduce global emissions of carbon dioxide to stabilize the climate, each nation would prefer that others did the hard work. In the terminology popularized by Olson, each nation wants to act as a “free rider” benefiting from the efforts of others.

With over one hundred countries taking part in the Durban conference, the free-rider problem would seem to be severe. But the model suggests that small countries (whose actions would have only a marginal impact on the outcome) should be the most prone to free riding. Countries large enough to have a substantial impact could be expected to support a strong agreement, assuming that they would also incur a large share of the consequences of failure. In a case where a few countries account for most of the emissions, and thus most of the impacts, agreement should not be hard.

Here the free-rider model fails almost completely. Together China, the United States and the European Union account for more than 55 percent of total CO2 emissions. Moreover, since these three account for the majority of global output and a large fraction of the world’s population, they will incur a substantial share of the adverse impacts of climate change.

Yet it is China and the United States, the two largest emitters, which have proven the greatest obstacles to an international agreement. Washington has refused to ratify the Kyoto protocol and failed to adopt any comprehensive climate-change policy. China played a central role in derailing the Copenhagen conference. Since then, Beijing has given mixed signals, but it continues to prefer posturing to serious agreements.

The EU, on the other hand, has strongly supported global agreements. It has led the way in terms of unilateral action, most notably through its emissions-trading scheme and an unconditional commitment to reduce emissions by 20 percent (relative to a 1990 baseline) by 2020.

But that only deepens the puzzle. The EU is not a nation, but a confederation of twenty-seven sovereign states. Why should they agree to take costly actions to mitigate a global problem? Not only is the benefit for any individual member negligible, the collective benefit for EU members, without action from the US and China, is modest at best.

Looking beyond the three big players, things get even worse for the free-rider analysis. Among the remaining developed countries, Australia, New Zealand and Switzerland have all implemented carbon taxes or emissions-trading schemes, while Japan and South Korea seem likely to follow suit in the near future. None of these countries accounts for more than 4 percent of global emissions, so their individual efforts will have only modest effects. The pattern seems exactly opposite to that predicted by the standard analysis of a collective-action problem.

One crucial problem with the standard model is that it treats every interaction between countries as a one-shot game. In this context, the well-known “prisoner-dilemma” model predicts that no one will act cooperatively. But national governments are negotiating all the time on many different issues. Good or bad behavior in one context can have consequences in others. A nation that persistently fails to cooperate with others in the provision of collective goods is likely to be marginalized in negotiations of all kinds.

The fact of repeated interactions, referred to in the game-theoretic literature as an “iterated prisoners dilemma,” helps to explain why so many small countries have acted to mitigate climate change.

The costs of initial steps toward mitigation have proved smaller than most analysts expected and far less than the apocalyptic claims commonly heard in public debate. The economic impacts of the EU scheme, for example, have been negligible, so much that they are impossible to measure against the background of volatility created by the global economic crisis.

The real puzzle is not the cooperative attitude of small countries but the recalcitrance of the biggest emitters, the United States and China. This calls into question another key assumption in the standard model: national governments participating in international negotiations can be viewed as unitary actors, representing a well-defined national interest. This assumption is clearly false when applied to the United States. The U.S. political system, built on separation of powers, has produced a situation where different branches of government have wildly opposing views about global warming.

The administration accepts mainstream climate science, and it supported the Waxman-Markey cap-and-trade bill. In contrast, almost all members of the Republican party believe (or at least publicly profess) that there is no convincing evidence of human-caused global warming. Some Congressional Republicans and an overwhelming majority of the conservative base believe in a conspiracy theory in which climate science is a Trojan horse for world government.

With Republicans in control of the House of Representatives and able to filibuster bills in the Senate, the Obama administration can’t commit to anything at Durban that would require new legislation. They can increase regulation, which will cost more and achieve less than market-friendly policies like cap-and-trade, and regulatory adjustments are unlikely to be sufficient to form the basis of an agreement at Durban. The failure of the United States to put forward a coherent position is therefore not a puzzle. It simply reflects a divided U.S. government on the question at issue.

The Chinese state is more opaque, but the same kinds of divisions play an important role. The Chinese equivalent of the U.S. Republicans are the backers of the authoritarian “Chongqing model,” which seeks to keep as much power as possible in the hands of the Communist Party and particularly the hereditary component of its leadership, the so-called “princelings.”

The leading intellectual representative of the Chongqing group is Zhang Musheng, a magazine editor and a minor princeling in his own right. Zhang agrees with Republicans like James Inhofe that climate science is a fraudulent conspiracy. But in Zhang’s version, the conspiracy theory has been cooked up by an American business class hoping to sell green-energy technology to China. Silly as this theory is, it is not as extravagantly absurd as its U.S. counterpart.

These internal divisions are playing out in an international context where climate negotiations are part of the general readjustment of power between a rising China and the still dominant United States. Chinese assertiveness is exacerbated by a communist government lacking not only democratic legitimacy but also any solid base of support. Meanwhile, many Americans are still recovering from the illusions of hyperpower that followed the collapse of the Soviet Union. The result is a willingness to butt heads, even on issues of vital importance to the future of the planet.

At this stage, there seems little prospect of the kind of “grand bargain” needed between the United States and China if any serious progress is to be made at Durban. The best hope is that the two powers will do nothing to obstruct partial agreements among others.

Even modest steps taken by smaller countries have yielded substantial fruit. In particular, the combination of carbon prices and incentives for renewable power has kick-started the long-dormant solar photovoltaics industry. The price of solar cells has been cut in half in the space a few years, a primary reason for the high-profile bankruptcy of the American company Solyndra.

A boom in the Chinese solar industry has created an interest group that is becoming an effective counterweight to Maoist dinosaurs like Zhang. Earlier this year China introduced a feed-in tariff for solar electricity, reflecting the changing balance of forces.

The emergence of solar as a feasible alternative means that a shift toward a low-carbon economy, given the right incentives, could take place faster than previously supposed. It has probably allowed the planet a few more years of breathing room. But only a fortuitous change in internal political alignments will enable the world’s two great powers to take advantage of this moment.

John Quiggin is the Hinkley Visiting Professor at Johns Hopkins University and an Australian Research Council Federation fellow at the University of Queensland. He is author of Zombie Economics: How Dead Ideas Still Walk Among Us (Princeton University Press, 2010).