International Agreements are Crucial to our Fight Against Climate Change, but Raise Concerns Pertaining to Distributive Justice
By: Tristan M
Tags: Climate Change, International Relations, Environmental Economics, Co2, Economics

Climate change is perhaps the most pressing environmental issue facing society today. As nations across the globe seek solutions, they should understand that international agreements are essential to slowing the warming of our planet.

Climate change refers to the warming of our planet, which has accelerated over the last 200 years (Ahn et al., 2012). When Carbon Dioxide (CO2) is released into our atmosphere, it allows the shortwave radiation emitted from the sun to enter our atmosphere. However, when that radiation is re-emitted from the earth as longwave radiation, some of it is absorbed and sent back down to earth by CO2 and other gases called “greenhouse gases” (NASA Science, 2020). This process, known as the greenhouse effect, warms our atmosphere. The important takeaway from this process is that the warming occurs globally. Therefore regardless of where greenhouses gases are emitted, the heat they trap will dissipate throughout the globe.

A smokestack from a power plant in Arizona. (Climate Home News, 2015)

This is problematic, as it presents an externality associated with emitting CO2 into the atmosphere. As countries and firms aim to serve the needs of their people or shareholders, we would expect them to act in their best interest. Therefore, when producing goods and services that emit CO2, countries will consider the damages CO2 emissions have on their own people, however fail to internalize the damages that CO2 causes other countries. As each country only represents a small fraction of the global population, we expect countries to over allocate resources to products and services that emit CO2.

The solution to this problem is to promote international agreements that require multiple countries to agree to tighter regulations on CO2 emissions. These agreements can be designed in such a way that leads to a better outcome for every country involved. If abatement costs and the damages associated with carbon emissions are known, this would allow countries to equalize their marginal abatement costs, and set them equal to the marginal damages associated with CO2 emissions. This is in accordance with the equimarginal principle, and would result in the socially efficient level of emissions. This could be accomplished through a pigouvian tax, which creates a tax equal to the marginal damages associated with carbon emissions. This tax would effectively ensure that firms set their marginal abatement costs equal to marginal damages, resulting in an efficient outcome.

Unfortunately, the issue is not this simple. First off, it is very difficult to estimate the damages associated with carbon emissions. Not only is there a degree of uncertainty associated with how much warming a unit of any given greenhouse cause will cause (United States Environmental Protection Agency, 2020), but it is also unclear exactly how much damage warming will cause. This uncertainty immediately presents a challenge when finding the efficient levels of emissions, and likely means that we will never be emitting at the truly “efficient” level. Nonetheless, we should use the estimates available to find solutions that are almost certainly more efficient than emissions in the absence of agreements.

The situation is further complicated when we consider that the damages caused by climate change will differ across different countries. For example, changes in agricultural productivity could be larger in certain regions, and some ecosystems may be more resilient to changes in temperature. Beyond differences in environmental damages, it is important to note that people will also value these damages differently. Individuals in poorer countries are often comparatively less concerned about the impacts of climate change. When individuals in these countries are struggling to have their basic needs met, they undoubtedly will ascribe more value to having these needs met when compared to changes in our climate. They will also discount the future more highly than those in developed nations, likely due to a need for necessities in the present, or an unfortunate understanding that their life expectancy is lower than those in developed nations.

From the standpoint of normative economics, developing nations also point out that many developed economies relied on fossil fuels to accelerate their early development. Therefore it can be argued that they should be given the same opportunities, or be compensated for adhering to regulations which industrialized nations were able to bypass during their development, given the effects of climate change were not well known at the time.

There are also issues associated with enforcing these regulations. Many countries may not have the infrastructure to enforce a robust system for regulating carbon emissions. Additionally, countries are incentivized to lie about their abatement costs, and underestimate their carbon emissions. This is due to an incentive to “free ride” and benefit off the reduction in emissions from other countries, without a given country reducing emissions themselves. This leaves countries even better off than if they were to follow the agreement, giving them an incentive to cheat on agreements. Similar to the prisoner’s dilemma, countries are better off when they all reduce emissions than when none do, however keeping emissions high is a dominant strategy, in that it always leaves the country better off, assuming the choice of other countries is already fixed. Countries must often rely on moral suasion, or the threat of damaging relations to ensure other nations adhere to guidelines.

As seen, international agreements can be an incredibly effective way to reduce emissions. Granted, we must be careful and consider that these agreements can affect various countries differently. If we carefully consider the impacts on all parties involved, we can use international agreements to increase economic efficiency, and fight climate change.