Cleaner Technologies and the Stability of International Environmental Agreements

• Author: HASSAN BENCHEKROUN,AMRITA RAY CHAUDHURI
• DOI: http://doi.org/10.1111/jpet.12111
• Published date: 01 December 2015
• Date: 01 December 2015

CLEANER TECHNOLOGIES AND THE STABILITY OF

INTERNATIONAL ENVIRONMENTAL AGREEMENTS

HASSAN BENCHEKROUN

Department of Economics and CIREQ, McGill University

AMRITA RAY CHAUDHURI

Department of Economics, University of Winnipeg, CentER and TILEC

Abstract

This paper shows that if countries are farsighted when

deciding whether to defect from a coalition, then the imple-

mentation of cleaner technologies, as embodied by a reduc-

tion in the emission per output ratio, may either improve

or jeopardize the chances of reaching an international en-

vironmental agreement. A small change in the emission per

output ratio can result in a discrete jump in the stable size

of a coalition and global welfare evaluated under the stable

coalition size. In the case of three countries, the grand coali-

tion may be destabilized by the implementation of cleaner

technologies, ultimately resulting in higher global emissions

and lower global welfare. In the case of more than three

countries, implementing cleaner technologies may result in

a discrete jump, either upward or downward, of the largest

stable coalition size and welfare. We examine both, the case

Hassan Benchekroun, Department of Economics, McGill University, and CIREQ, Canada

(hassan.benchekroun@mcgill.ca). Amrita Ray Chaudhuri, Department of Economics,

University of Winnipeg, Canada, and CentER, TILEC, Tilburg University,The Netherlands

(a.raychaudhuri@uwinnipeg.ca).

We thank Archan Hazra for research assistance. We are grateful to Pablo Andr´

es

Domenech, Isabel Galiana, G´

erard Gaudet, and Ngo Van Long for helpful comments. We

also thank seminar participants at LAMETA (Montpellier), University of Ottawa, Tilburg

University, University of Valladolid,and Vrije Universiteit Amsterdam, and session partici-

pants at the 19th Annual Conference of the European Association of Environmental and

Resource Economists (Prague), the 12th Workshop on Optimal Control, Dynamic Games

and Nonlinear Dynamics (Vienna) and Economics of Trade, Environment and Resources

Conference (Winnipeg) for helpful discussions. We are grateful to the Editor, Associate

Editor, and two anonymous referees for insightful comments. Usual disclaimers apply.We

thank SSHRC, Hassan Benchekroun thanks FQRSC, and Amrita Ray Chaudhuri thanks

the Board of Regents of the University of Winnipeg for financial support.

Received August 6, 2013; Accepted October 8, 2013.

C2014 Wiley Periodicals, Inc.

Journal of Public Economic Theory, 17 (6), 2015, pp. 887–915.

887

888 Journal of Public Economic Theory

of a flow and that of a stock pollutant. In the latter case, we

show that the higher the stock of pollution at the instant

when the cleaner technology is implemented, the more

likely that a grand coalition of three countries is destabi-

lized. Measures that enhance the natural rate of decay of

stock pollutants are shown to have similar effects on the size

of stable coalitions to reductions in the emission per output

ratio.

1. Introduction

This paper examines the stability of international agreements on emission

reductions of a transboundary pollutant when the countries involved imple-

ment “cleaner” technologies that reduce emission-output ratios. This topic

gains importance in light of the large expenditures that have been made in

recent years for creating cleaner technologies.1

We focus on those cases of transboundary pollution that affect a small

number of countries or blocks of countries. This is an important scenario to

consider since certain types of transboundary pollutants, in reality, damage a

few neighboring countries/regions. For example, consider the pollution of

lakes, such as the Black Sea or the Great Lakes, that are surrounded by a few

countries each with their independent emission strategies. Another scenario

where this setting gains relevance lies within the context of climate change.

In recent international negotiations over climate change (for example, at

the UNFCCC COP Meetings at Copenhagen, 2009, and Cancun, 2010), only

a small number of large countries or blocks of countries (e.g., the United

States, China, and EU) dominated discussions and played a decisive role in

determining the outcomes.

This affects our choice of stability criteria for the possible coalitions that

may arise among them, as follows. Much of the literature on international

environmental agreements (IEAs) uses the internal and external stability

criteria as described by d’Aspremont et al. (1983) and applied to the con-

text of IEAs by Barrett (1994), Carraro and Siniscalco (1993), Diamantoudi

and Sartzetakis (2006), Finus (2003), Karp and Simon (2013), and others.

These criteria rely on the restrictive assumption that if one country defects

from a given coalition, the rest of the members of the coalition continue to

participate in the IEA. However, if only small coalitions form, the assump-

tion that a player does not take into account the impact of its decision to

1In 2002, the United States announced a policy to reduce the ratio of emissions to eco-

nomic output by 18% over the next 10 years. Since then other major polluters such as

China and India have also committed to emission per output targets. In 2007 alone, new

investment in clean energy worldwide rose by 60% above the 2006 level globally (UNEP

2008).