How to Explain the Paris Negotiations. Environmental Cooperation in the Light of Behavioral Economics

Contents

Index of Abbreviations

1. Introduction

2. International Cooperation on Climate Change

3. Mechanisms of Cooperation
3.1. A Game Theory Approach
3.2. A Behavioral Economics Approach

4. Cooperation in Global Climate Negotiations

5. Conclusion

Bibliography

Index of Abbreviations

Abbildung in dieser leseprobe nicht enthalten

1. Introduction

One of the biggest challenges of the globalized world is still the establishment andmaintenance of international cooperation. The growing interdependency producedby cross-border externalities demand for joint actions in an anarchic world order.

The United Nations (UN) or the international economic system, consisting of theWorld Bank, the International Monetary Funds (IMF) and the World Trade Organi-zation (WTO), are some examples of mostly successful supranational forms of co-operation. What those institutions not include is the threat of climate change, whichis today’s biggest challenge of international matter. With its Report “Limits toGrowth” from the year 1972, The Club of Rome not only put the subject of climatechange for the first time on the political and scientific agenda but also raised thepublic awareness of this problem (Meadows, 1972). From this point on, ongoingefforts were made to commonly regulate emissions and control the sustainability ofclimate goods. Nevertheless, the first binding agreement on climate change, theParis Agreement, entered into force 44 years after this report, on the 4th of Novem-ber 2016.

For some political and economic theorists this is no surprise. Following the assumptions of the economic game theory and global governance-approaches, non-coop-erative behavior is the consequence of rational decision making. Basic dilemma situations depict the competition about non-excludable goods and foresee the challenges of global climate negotiations.

The latest success on the Climate Conference in Paris challenges these assump-tions and raises new questions about human cooperative behavior. While this matterhas its origins in the neo-classical approach of game theory, behavioral economistsstarted to examine the phenomenon and question the basic assumption of rationalchoice. “Homo oeconomicus is also a Homo socialis” (Meissner et al., p. 10).

Aspects of both facets of human behavior shall be analyzed in this paper, in order to explain the mechanisms of cooperation on climate change. The existing literature focuses mostly on only one of these aspects which leads to an incomplete picture of the decision-making process.

To reach this purpose, the paper is structured as follows: In the first section, the development of climate negotiations is summarized by beginning with the UnitedNations Framework Convention on Climate Change (UNFCCC) and ending with theratification process of the Paris Agreement. The second section introduces the pos-sible mechanisms for decision making, both from a game theory and a behavioraleconomics perspective, before the fourth section analyses the impact of those prop-erties on the, in the beginning portrayed, events. The conclusion will sum up thepresented arguments and gives an outlook for future climate negotiations.

2. International Cooperation on Climate Change

For analyzing the influence of behavioral biases on climate negotiations, this paper looks back to the negotiation process of the UNFCCC from its first meeting in 1992 to its 21st annual conference in Paris in 2015, where a new agreement for the post 2020 period was adopted.

With widely recognized comments on global developments and challenges, like theMeadows Report of the Club of Rome in 1972 or the Brundtland Report “Our Com-mon Future”, climate change became an intensively discussed issue and was seton the political agenda of national and international interests (Lutterbach; Sprinz2001, p. 23ff.). Taking the global warming and other environmental threats as a se-rious concern, the first international conference to address those challenges washeld in Rio de Janeiro in 1992.

At that time, conventions were mainly established as frameworks for future negoti-ation as they built the ground for further meetings where more substantive protocolscould be adopted (ibid., p 33). The first of such a binding treaty for the worldwideregulation of climate change patterns was the 1997 adopted Kyoto Protocol, whichdemands for emission reductions in developed countries and provides monetary aidmechanisms for a sustainable development in developing countries (UNFCCC,2017a).

In the aftermath of this treaty, which regulates binding thresholds for the memberstates until 2020, the focus was lead not only on the surveillance, report and problem solving of the Kyoto Protocol, but also on a suitable successor for the post 2020 period.

After the hopes for such a new agreement vanished on the COP15 and COP16 conferences in Copenhagen and Cancun, the 2015 international climate conference (COP21), also known as the Paris Climate Conference, finally reached consensus. The new Paris Agreement was a joint attempt of 195 countries to solve global challenges of climate change after 2020.

As a first universal and legally binding climate deal, it includes the goals of further emission reduction and the support for climate actions in developing countries. Moreover, governments agreed on an upper limit for the increase in global average temperature by 2°C above pre-industrial level. They demand for regular meetings in an interval of five years to set new targets, give reports of current developments and to retain transparency. In addition, the Paris Agreement acknowledges the need for cooperation in environmental issues.

The agreement entered into force in November of 2016, after 55 parties, including the United States of America and China, and by this, the benchmark of 55% of the total global greenhouse gas emissions, was reached. (UNFCCC, 2017b)

3. Mechanisms of Cooperation

In the Political and Economic science, it has been widely accepted that the world order is an anarchic one. Countries interact without a governing institution which sets rules and norms, monitors its compliance and punishes its violation. From this starting point, different theories of International Relations try to explain the motivation that lies within international cooperation.

First assumptions in this field were those of political Realism and Neo-Realism. Inan anarchic world order, countries are driven by their desire to either sustain or evento increase their power (Morgenthau,1954, p. 25). While in realism, the concept anduse of power is an end in itself, the more recent assumptions of neorealism seepower as a means to self-protection. In this concept of International Relations, coun-tries are assumed to be black boxes, homogenous actors with rational needs andthe desire of utility maximization. Due to the competitive nature of the international sphere, cooperation only exists as fragile, temporary alliances with the aim of achieving a common goal, whereas the basic goal will always be the preservationof relative power. Being concerned about this relative power, countries won’t bindthemselves to international institutions on the long run. Following this assumption,institutions and international organizations can be considered as marginal phenom-ena of foreign affairs with no real influence. They are rather characterized as instru-ments of powerful hegemons who use them to enforce national interests. (Waltz,2010) A more positive evaluation of international cooperation lies within the approach of neoliberal institutionalism. As in the theories of (neo)-realism, this approach tries to find the reasons for transnational cooperation in an anarchic world. In like manner, the main actors are countries which are guided by their rational self-interests (Schimmelfennig, 2013, p. 112).

Unlike the pessimistic view of the former, neoliberal institutionalists regard the es-tablishment of international institutions as a key factor to overcome present cooper-ation dilemmas. The underlying assumption of this theory is an increasing worldwideinterdependency, fostered by the process of globalization and defined by the diffi-culty, if not inability to solve common problems unilaterally. In other words, this in-terdependency occurs where cross-border externalities exist. Apparently, the envi-ronmental challenges of the 21st century are major aspects of common problems.These approaches of Political Theory make use of economic game situations, whichwill be introduced in the following section, to break down the threats of internationalrelations.

3.1. A Game Theory Approach

The lack of international cooperation on climate change and the protection of theenvironment is a widely discussed scenario and a dilemma which is until now hardlysolved. What makes the decision making process so challenging are the character-istics of the negotiating parties and the concerned goods. In the following, this paperuses basic concepts and game situations of economic game theory to explain the main obstacles to climate negotiations such as the Paris Agreement, as well as the chances for future policies.

Thus, it is inevitable to put the focus on the concepts and properties of "Public Goods" (PG) and "Common Pool Resources" (CPR) as they represent the most disputed goods of Climate Change Agreements.

What both of the concepts have in common is that those goods are not excludable.Everyone can use and take advantage of such a good without making any effort toconsume and sustain it. This characteristic distinguishes PGs and CPRs from Pri-vate Goods and Club Goods which are defined by their excludability. The conceptof Public Goods further includes the attribute of non-rivalry. Nobody can be excludedfrom consuming PGs and everybody can do so in the same manner. This charac-teristic makes the main difference between PGs, such as fresh air, and CPRs. Thelatter are distinct from other goods by their rivalry. Global fish stocks is the mostreferred example of such a good (Grafton, 2004, p. 36ff.). Moreover, PGs adopt theproperties of CPRs in an extension of the observed situation to an intergenerationalapproach. In this case, rivalry with future generations occurs, so that Climate nego-tiations need to treat PGs and CPRs with the same policy mechanisms.

Such policy mechanisms include the creation of international institutions. Taking another basic assumption as given, that human behavior is characterized by selfish and rational decision-making, such institutions are needed to guarantee a fair distribution of those goods and to prevent their overexploitation.

Nevertheless, cooperation is not always feasible. The theories of neoliberal institutionalism and game theory make use of basic game situations to depict such dilemmas of cooperation. One of these models is the so called prisoner’s dilemma, in which mutual cooperative behavior of two players is desirable but not the most likely outcome. Due to a lack of information, both players tend to choose non-cooperative behavior, the second best option, over cooperation. Presumptions of this model are, that both decisions are made simultaneously, without receiving information about the opposite’s behavior. Further, the players are again defined by risk-aversion and rational decision making. (Pittel; Rübbelke, 2007, p. 11ff.)

Putting the case of cooperation to save global fish stocks as an example, and pre- tending that no other controlling institution is installed in this situation, both players(here: Country A and Country B) would prefer the non-cooperative action and con-tinue with an unsustainable fishing behavior. The here negotiated property is char-acterized as a Common Pool Resource. Fish stocks are non-excludable but rival asfish can only be consumed until the stocks are demolished. In the short run, bothcountries benefit from the consumption of this good more than from its protection.In the long run, overfishing reduces the stock to its minimum. Consequently, in thelong run, non-cooperative behavior would lead to the worst outcome for everyonewhereas the highest benefit lies within a mutual agreement on the protection ofglobal fish stocks.

Unilateral protection by Country A leads to high costs for this country and puts fur-ther benefit to Country B as it doesn’t have any costs and still a more protectedglobal environment. The lack of trust and information of the opponent’s decision andthe fear of Country B choosing non-cooperative behavior makes Country A’s ten-dency to choose non-cooperation more likely as well. A way out of this dilemmawould be the establishment of institutions which provide the necessary informationand transparency to rise the likelihood for a mutual compliance with the offered so-lutions.

Another way to explain non-cooperative behavior of past climate negotiations can be found in an alternative concept of economic game theory. The preconditions are the same as described before. Agents are selfish, rational individuals, led by risk aversion and utility maximization.

The following model describes “free riding” as a non-cooperative behavior by con-suming a good without contributing to arising expenses. As pointed out before, Pub-lic Goods and Common Pool Resources are defined by their non-exclusiveness.Everyone can receive the benefits of such a good without special requirements ofsupplement. Taking fresh air as an example, this assumption becomes more evi-dent.

International Cooperation on emission reduction puts benefits to our air but is alsovery costly. Hence, non-compliance to agreed regulations without a punishing body reduces the individual’s costs, without reducing temporary benefits of its consump- tion. In this model, a rational utility maximizer would choose non-compliance over cooperative behavior and rely on the compliance of others.

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