Johan Eyckmans

An Almost Ideal Sharing Scheme for Coalition Games with Externalities

We propose a class of sharing schemes for the distribution of the gains from cooperation for coalition games with externalities. In the context of the partition function, it is shown that any member of this class of sharing schemes leads to the same set of stable coalitions in the sense of d’Aspremont et al. (1983). These schemes are “almost ideal” in that they stabilize these coalitions which generate the highest global welfare among the set of “potentially stable coalitions”. Our sharing scheme is particularly powerful for economic problems that are characterized by positive externalities from coalition formation and which therefore are likely to suffer from severe free-riding.

The impact of the unilateral EU commitment on the stability of international climate agreements.

The negotiation strategy of the European Union was analysed with respect to the formation of an international climate agreement for the post-2012 era. Game theory was employed to explore the incentives for key players in the climate policy arena to join future climate agreements. A −20% unilateral commitment strategy by the EU was compared with a multilateral −30% emission reduction strategy for all Annex-B countries. Using a numerical integrated assessment climate—economy simulation model, we found that leakage, in the sense of strategic policy reactions on emissions, was negligible. The EU strategy to reduce emissions by 30% (compared with 1990 levels) by 2020, if other Annex-B countries follow suit, does not induce the participation of the USA with a comparable reduction commitment. However, we argue that the original EU proposal can be reshaped so as to stabilize a larger and more ambitious climate coalition than the Kyoto Protocol in its first commitment period.

Is Kyoto Fatally Flawed? An Analysis with Macgem

In this paper we present some numerical simulations with the MacGEM model to evaluate the consequences for the Kyoto Protocol on the reduction of greenhouse gases of the recent Bonn agreement and the nonratification by the USA. MacGEM is a global marginal abatement cost model for carbon emissions from fossil fuel use. Marginal abatement cost functions are estimated on data generated with the GEM-E3-World general equilibrium model under the assumption that abatement is produced in a cost efficient way in every individual country/region of the model. Nonparticipation of the USA causes the equilibrium carbon price in Annex B countries to fall by approximately 50% since an important share of permit demand falls out and the global abatement objective is substantially eroded. With respect to the Bonn agreement, we focus on the Commitment Period Reserve (CPR) and carbon sinks. The CPR is a compliance mechanism requiring all Parties to maintain some fixed number of permits on their permit account. It entails a binding permit export ceiling for the former Soviet Union and central European countries. It raises the equilibrium carbon permit price by approximately 30% and generates substantial monopoly rents for permit exporters. Finally, carbon sinks enhancement activities are accounted for by assuming that they represent free abatement options. These activities enable Parties to fulfil their reduction commitment at lower compliance costs and cause the equilibrium permit price to decreases even further. We conclude that the Bonn agreement has indeed eroded completely the Kyoto Protocols emission targets but that it has the merit to have saved the international climate change negotiation framework.

Wasteful waste-reducing policies? The impact of waste reduction policy instruments on collection and processing costs of municipal solid waste.

We study the impact of some local policies aimed at municipal solid waste (MSW) reduction on the cost efficiency of MSW collection and disposal. We explicitly account for differences between municipalities in background conditions by using a bootstrapped version of the Data Envelopment Analysis methodology in combination with a matching technique. Using data on 299 municipalities in Flanders, Belgium, for the year 2003, our results indicate that municipalities that are member of a waste collection joint venture, or that subscribe to a voluntary agreement to reduce MSW at the highest ambition level, collect and process MSW more efficiently than other municipalities. Weekly instead of two-weekly waste collection, or using a weight-based pricing system appears to have no impact on efficiency. Our results show that aiming at MSW reduction does not lead to lower efficiency of public service provision, even on the contrary.

New roads to international environmental agreements: the case of global warming

We relax the single agreement and open membership assumptions that are implicit in the concept of internal and external stability, which has been widely used to analyze the formation of international environmental agreements (IEAs). By means of numerical simulations we investigate the impact of these changes using a dataset derived from an integrated assessment model of climate change. Our simulations show that multiple agreements are superior to a single agreement and exclusive membership is superior to open membership in ecological and welfare terms. Moreover, we demonstrate the importance of transfers for successful treaty making and we derive recommendations for the design of future IEAs.

Strategy proof uniform effort sharing schemes for transfrontier pollution problems

Uniform effort sharing rules for transfrontier pollution problems, like the popular equal percentage reduction arrangement, do not result in a cost efficient allocation of emission abatement efforts. In addition, they may violate voluntary participation constraints if the uniform effort level is decided upon by means of ordinary majority vote. In contrast to ordinary majority vote, I consider in this paper the so-called conservative mechanism by Moulin (1994) which picks the smallest revealed effort level in stead of the median. The conservative mechanism always respects a weak participation constraint. Moreover, it is coalitionally strategy proof meaning that no individual player, or group of players, can achieve a better outcome by misrepresenting its preferences for environmental quality. In order to remedy the cost inefficiency of the equal percentage arrangements, I propose to apply the conservative mechanism to the choice of a uniform emission tax rate. Simulations for the greenhouse effect indicate that the latter mechanism does considerably better than the traditional equal percentage arrangement.

The Stability and Effectiveness of Climate Coalitions: A Comparative Analysis of Multiple Integrated Assessment Models

We report results from a comparison of numerically calibrated game theoretic integrated assessment models that explore the stability and performance of international coalitions for climate change mitigation. We identify robust results concerning the incentives of different nations to commit themselves to a climate agreement and estimate the extent of greenhouse gas mitigation that can be achieved by stable agreements. We also assess the potential of transfers that redistribute the surplus of cooperation to foster the stability of climate coalitions. In contrast to much of the existing analytical game theoretical literature, we find substantial scope for self-enforcing climate coalitions in most models that close much of the abatement and welfare gap between complete absence of cooperation and full cooperation. This more positive message follows from the use of appropriate transfer schemes that are designed to counteract free riding incentives.

Strengthening bottom-up and top-down climate governance

Although the UN and EU focus their climate policies on the prevention of a 2 °C global mean temperature rise, it has been estimated that a rise of at least 4 °C is more likely. Given the political climate of inaction, there is a need to instigate a bottom-up approach so as to build domestic support for future climate treaties, empower citizens, and motivate leaders to take action. A review is provided of the predominant top-down cap-and-trade policies in place – the Kyoto Protocol and EU Emissions Trading Scheme (EU ETS) – with a focus on the grandfathering of emissions entitlements and the possibility of offsetting emissions. These policies are evaluated according to two criteria of justice and it is concluded that they fail to satisfy them. Some suggestions as to how the EU ETS can be improved so as to enable robust climate action are also offered. Policy relevance The current supranational climate policy has not been successful and global leaders have postponed the adoption of a meaningful successor to the Kyoto Protocol. In view of this inaction, bottom-up approaches with regard to climate policy should be further developed. It is argued that two of the main top-down policies, grandfathering and offsetting, impede the avowed goals of EU climate policy and pose significant ethical dilemmas with regard to participatory and intergenerational justice. In order to provide a more robust EU climate policy, the EU should inter alia provide a long-term perspective for investors, reduce the volatility of the carbon price, and prepare for the possibility of carbon leakage.

An 'Ideal' Normative Theory for Greenhouse Negotiations?

By the end of the 1980s public opinion became aware of the possible threat of global climate change caused by the so-called greenhouse effect. Researchers of different scientific disciplines started warning that the increasing emissions of greenhouse gases like for instance carbon dioxide (CO2) and methane (CH4) might cause irreversible changes to the global climate system in the future. If nothing is undertaken to curb greenhouse gas emissions today, global climate change might place a considerable burden upon future generations, especially in developing countries. In the first section we review some of the scientific evidence for past and projected future climate change. The emphasis will be on the extreme long-term perspective of the greenhouse problem. As such, the greenhouse problem definitely classifies as a “time bomb” which is passed on from the current generation to many generations to come. We also address the issue of the distribution of the cost of climate change adaptation and mitigation strategies and review the current status of the international climate policy negotiations, in particular the ratification status of the 1997 Kyoto Protocol. Section two concentrates on a normative framework for the greenhouse problem and analyzes this from an ‘ideal’ (cf. Rawls) point of view. We shall defend in this section our preferential option for the poor and develop a welfare-theoretic framework that starts from the preference option for the poor and is close in spirit to the Rawlsian difference principle. Within this framework, arguments of historic responsibility and past emissions cannot be used as basis for the distribution of climate change mitigation or adaptation efforts.

Simulating a Sequential Coalition Formation Process for the Climate Change Problem: First Come, But Second Served?

We analyze stability of self-enforcing climate agreements, considering a sequential coalition formation process of heterogeneous and farsighted players. Players can make proposals which are either accepted or countered by alternative proposals. We discuss the conceptual difficulties of implementing and solving such a game and the strategic options arising in a sequential process. This is illustrated with simple examples and with numerical simulations using the CLIMNEG world simulation model (CWSM).