NEW YORK REVIEW OF BOOKS: …he benefits from investments to reduce emission of CO2 and other greenhouse gases are a global public good. They require costly investments by individual countries. However, the benefits from the lower emissions are spread widely around the world, and the country undertaking the investments will receive only a tiny fraction of the benefits. Wagner and Weitzman put the point as follows:
Why act, if your actions cost you more than they benefit you personally? Total benefits of your actions may outweigh costs. Yet the benefits get spread across seven billion others, while you incur the full costs. The same logic holds for everybody else. Too few are going to do what is in the common interest. Everyone else free-rides…
A crucial aspect of the club is that countries who are outside the club—and do not share in the burden of emissions reductions—are penalized. Penalties for those outside the club are central to the club mechanism, and penalties are the major difference from all other proposals from Kyoto to the upcoming meeting in Paris. Economic modeling indicates that the most promising penalty is uniform percentage tariffs on the imports of nonparticipants into the club region. A country considering whether to undertake costly abatement would have to weigh those costs against the potentially larger costs of reduced trade with countries in the club.
A central feature of the club is that it creates a strategic situation that is the opposite of today’s free-riding incentives. With a Climate Club, countries acting in their self-interest will choose to enter the club and undertake high levels of emissions reductions because of the penalties for non participation… (more)
