Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/74819 
Authors: 
Year of Publication: 
2013
Series/Report no.: 
Nota di Lavoro No. 48.2013
Publisher: 
Fondazione Eni Enrico Mattei (FEEM), Milano
Abstract: 
We present typical scenarios and general insights from a novel dynamic model of farsighted climate coalition formation involving market linkage and cap coordination, using a simple analytical model of the underlying cost-benefit structure. In our model, the six major emitters of CO2 can link domestic cap-and-trade systems to form one or several international carbon markets, and can either choose their emissions caps non-cooperatively or form a hierarchy of cap-coordinating coalitions inside each market. Based on individual and collective rationality and an assumed distribution of bargaining power, we derive scenarios of such a climate coalition formation process which show that a first-best state with a coordinated global carbon market might well emerge bottom-up, and underline the importance of coordinating caps immediately when linking carbon markets. Surprisingly, the process tends to involve less uncertainty when agreements can be terminated unanimously or unilaterally, depending on the level of farsightedness.
Subjects: 
Climate Policy
International Environmental Agreements
Cap and Trade
Coalition Formation
Farsightedness
JEL: 
D85
Q5
Document Type: 
Working Paper

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