- The planet is in crisis, and global efforts to mitigate climate change have so far been unsuccessful.
- The voluntary nature of international climate agreements means that some countries have become a “free runner”: one country receives the benefits of reducing greenhouse gas emissions without contributing to the costs.
- This is why we need globally recognized and legally binding obligations to prevent environmental exploitation.
The causes and effects of climate change are global – carbon emissions anywhere in the world put people at risk everywhere. As a result, since 1979, extreme weather and weather events have caused two million deaths and increased economic losses. In addition, future climate change is expected to cause 250,000 deaths each year.
However, despite the urgency of climate change, global efforts to mitigate the effects of climate change have been ineffective. The question is why? In this article, we use economic principles to comment on the current international climate governance structure and present the reasons behind this ineffective climate action.
Efforts to mitigate climate change are lagging
The atmosphere is a global shared resource – acting as a sink for greenhouse gases (GHGs). Since the Industrial Revolution, increased anthropogenic emissions (primarily due to burning fossil fuels) have altered the Earth’s energy balance, and caused the planet to warm. Reports indicate that human activities have raised the Earth’s temperature by about 1.1°C: compared to 19°CThe tenth century. In fact, 2021 was one of the hottest years ever.
Thus, this human-caused warming is a significant contributor to the frequency and intensity of extreme weather events that threaten lives and livelihoods. Some recent examples include extreme heat waves in Australia, the United States and Canada, to floods in Europe and China, to severe droughts in Ethiopia, and tropical cyclones in Southeast Asia. However, although climate change is a pressing concern; Global efforts to mitigate the effects of climate change (measures taken to avoid and reduce greenhouse gas emissions) have failed to achieve the desired result.
Moreover, between 1995 and 2021, 26 United Nations conferences on climate change were organized. It resulted in the production of climate treaties such as the Kyoto Protocol and the Paris Agreement. However, the greenhouse gas index has risen 41% since the 1990s. For 2021, “global energy-related carbon dioxide emissions rose 6%” to 36.3 billion tons, an all-time high.
Why did this happen? The answer lies in the economy.
What is the free passenger problem and how does it apply to climate change?
In the contemporary economy, public goods have two characteristics: “non-excludable” and “non-competitive”. Simply put, they are goods available to everyone, and their enjoyment by one user does not preclude others from using them.
Climate Change Mitigation (CCM) is a global public good. This is because if India makes mitigation efforts to reduce greenhouse gas emissions, it cannot “exclude” China from enjoying the benefits of its efforts – regardless of whether China deals with a similar policy. However, it is noted that the costs are borne only by the country implementing the green policy (for example, India).
Moreover, this “non-excludable” characteristic of climate change mitigation creates the problem of the free passenger – An example in which a country obtains the benefits of reducing greenhouse gas emissions without contributing to the costs. A country implementing a green policy incurs 100% of the cost – either in the form of adopting low-carbon technologies or other short-term transition costs of the transition to cleaner energy – but receives fewer benefits (compared to the costs incurred). Primarily because of the benefits of climate change mitigation spill over national boundaries due to the global nature of the atmosphere.
This indirect effect creates strong incentives for a large number of countries to move freely at the expense of other countries. Ironically, this motivates them to invest resources in national goals as the benefits do not spread beyond national borders. when a number of countries pursue such acts of rational self-interest; It leads to mass catastrophe – unsustainable exploitation of the environment. In addition, it is unfortunate that the current international climate management structure has failed to address this syndrome of free use.
The problem of international climate agreements and what needs to be changed
Under international law, there is no legal mechanism to address free riding syndrome – Because international agreements are voluntary arrangements. As a result, they lack strong incentives to penalize withdrawal from the agreement or failure to meet commitments. In the context of climate, the result is chaos.
Powerful nations choose to cooperate only if the proposed new agreement serves their interests. For example: The United States, a major emitter, did not ratify the Kyoto Protocol on the grounds that it was unfair to industrialized nations – leading to its silent death. Likewise, on the issue of lack of incentives, the current Paris Agreement – which aims to limit global warming preferably 1.5°C above pre-industrial levels – mostly relies on countries to establish and update pledges (or Nationally Determined Contributions) that have no commitments legally binding.
Climate change is an urgent threat that requires decisive action. Societies around the world are already experiencing increasing climate impacts, from droughts to floods to rising sea levels. The World Economic Forum’s Global Risks Report continues to put these environmental threats at the top of the list.
To limit global temperature rise to below 2°C and as close as possible to 1.5°C above pre-industrial levels, it is essential that companies, policy makers and civil society develop comprehensive near- and long-term climate actions in line with the goals of the Paris Agreement on climate change. the climate.
The World Economic Forum’s Climate Initiative supports the expansion and acceleration of global climate action through collaboration between the public and private sectors. The initiative works across several work streams to develop and implement comprehensive and ambitious solutions.
This includes the CEO Climate Leaders Alliance, a global network of business leaders from various industries who develop cost-effective solutions for the transition to a climate-resilient, low-carbon economy. CEOs use their position and influence with policymakers and corporate partners to accelerate the transition and realize the economic benefits of a safer environment.
Contact us to get involved.
The result is that most countries make large pledges at conferences, but most lack domestic policy support. For example, at COP 26 in Glasgow, UK, China (the world’s largest emitter) pledged to reach carbon neutrality by 2060 but provided almost no details on how this would happen, raising concerns about its viability. No wonder the world is on track for a warming of 2.7°C that will have profound effects on life around the world.
Above all, the current framework lacks the power to address free use as it does not impose any penalties for breach of the terms. Nor does it have an administrative body or an international court to enforce compliance with it. In 2020, the United States withdrew from the agreement without consequences and rejoined 107 days later. Professor William Nordhaus’ proposal to create a climate club model to eliminate free riding – using the right incentives to induce cooperation, could be one step in the right direction to find a solution to the problem. The model shows how a club of nations can price carbon and impose trade sanctions (through a uniform tariff) on all non-participating countries to accommodate transnational externalities.
The European Union’s Carbon Limits Adjustment Mechanism (CBAM), which is designed to prevent carbon leakage, is quite similar because it uses trade policy to create the right incentives to protect the climate. It is certainly a step in the right direction to achieve net zero greenhouse gas emissions by 2050. However, the Russian invasion of Ukraine will affect the pace of negotiations on CBAM. Thus, immediate structural changes are required to discourage acts of rational self-interest to ensure that efforts by blocs such as the EU are not in vain.