INTCOP21

Policy linkages and international cooperation on climate change: Who cares about the economic burden of the environment?

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 Obiettivo del progetto (Objective)

'The goal of this research is to shed light on some relevant aspects of the relationship between the world trade liberalization, i.e. the increasing economic inter-connexions between countries, and the international provision of global public goods such as climate stability. The idea is to contrast with the existing literature on international cooperation that mostly assumes that countries’ environmental policies are substitutable or even independent. Instead, the approach proposed aims at considering in deep the fundamentals of strategic interactions between countries. The alternative assumption is that unilateral emission reductions by a set of countries can create self-interested emission reductions in other countries. Our primary objective is to study the impacts of some of the major insights used in international trade theory on countries’ incentives to participate in an international environmental agreement, on the environmental impact of such cooperation and on the conditions of emergence of a leading group in lowering emissions. This point will be achieved using non-cooperative game theory (to model strategic interactions), coalition formation theory (to model incentives to take part in an agreement) and international trade theory (to model policy linkages between open trading nations). Beyond the theoretical outcome, the enclosed objective of the research is to confront the results of the theory with experimental data. Through the design of a matching process in which one country’s contribution depends on other countries´ abatement efforts, the question arises whether such a mechanism could reduce free-rider behavior and induce a more efficient negotiation outcome. Finally this research is essential to tackle the provision of global public goods which is one of the new challenges of the twenty-first century. Recognizing the existence of such goods and securing their provision at an international level are central for promoting the well-being of humanity.'

Introduzione (Teaser)

An EU team studied relationships between countries' investments in research and development (R&D) and environmental policies.

Descrizione progetto (Article)

Regarding international economic efforts to maintain climatic stability, many assume that various countries' environmental policies are substitutable or independent. Yet, with the world becoming increasingly interconnected economically, this assumption may prove incorrect.

The EU-funded project http://www.feem.it/getpage.aspx?id=4338&sez=Research&padre=18&sub=70&idsub=86&pj=Past (INTCOP21) investigated the connection between environmental regulation and innovation in an international context. Specifically, the team examined how the presence of two externalities, the one associated with the environmental and the one associated with innovations might affect participation in international environmental agreements as well as the environmental impact of the cooperation. Also of interest were the conditions affecting emergence of a group to lead emissions reduction. The two-year project utilised a combination of theoretical systems, including game theory, coalition formation theory and others relating to international trade. The study wound up in late 2013.

Partners first dealt with the evolution of the greenhouse consequences given each type of national behaviour resulting from global economic interconnectivity. Assuming strong interdependencies, the researchers showed the potential consequences of free trade arrangements on the environment, while questioning whether trade liberalisation necessarily increases countries' welfare. The project's paper on this topic illustrated that key economic assumptions affecting the environment have not been previously considered.

A further question was how R&D investment and technology diffusion affected incentives to enact stronger greenhouse policies. Initial results showed that a country's dependence on absorptive capacity on its own R&D raises the effectiveness of that R&D. Yet, the condition also lowers effective spillovers, reducing the disincentive to invest in R&D. Generally, if emissions strategies are substitutable, increase in one country's R&D expenditure can lead to decrease in another's emission levels.

The team experimentally tested this predictions by means of a 'threshold public goods' game experiment involving small groups of individuals. Findings suggest that cooperation on innovation might promote group-wide cooperation, but assumptions about appropriability of innovation are key to understand implications for non-participants to the agreement.

INTCOP21 examined the connection between international trade and the effectiveness of environmental policies. In particular, the group studied the dynamics of R&D investment in terms of emissions levels.