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Climate change: a global deal or local solutions?

This December, the Copenhagen summit will aim to reach a global deal on reducing greenhouse gas emissions to mitigate climate change. Research by Sayantan Ghosal and colleagues explains the problems with a multilateral agreement, and proposes an alternative policy framework that builds on unilateral commitments, innovation and technology transfer and from which global solutions could emerge.

There is overwhelming evidence of both global warming and the contribution of human activities to climate change. To mitigate the possibility of potentially catastrophic climate change, the rise in global temperatures needs to be stabilised at 2°C initially and 3°C thereafter (relative to pre-industrial levels). This, in turn, requires a substantial cut in greenhouse gas emissions: estimates vary from between 50% and 80% relative to 1990 levels.

Given the global nature of emissions, the seemingly obvious solution is a multilateral agreement. And that is the ambition of the United Nations climate change conference due to meet in Copenhagen in December to finalise a successor to the Kyoto Protocol.

The problem is that such an agreement is highly vulnerable to one nation or a group of nations deciding not to participate or not to comply. This is ultimately because of the ‘negative externality’ associated with greenhouse gas emissions: emitters do not pay the full costs of the damage they cause to other nations or future generations.

Cutting emissions incurs costs in the short run while yielding uncertain benefits in the future. By delaying participation or by not complying with agreements, nations can capture the benefits from continuing with "high-carbon" economic activities while passing a significant portion of the costs to other nations and future generations.

Unilateral commitments to cut emissions can stimulate innovations that lower the cost of switching to low-carbon activities

Our research suggests that the fact that there are weak property rights over global emissions (and the threat of retaliatory punishment is limited) is likely to blunt the effectiveness of a broad-based multilateral agreement on climate change. Instead, we propose a policy framework that builds on unilateral commitments to deliver cuts in emissions, which stimulate appropriate innovation and technology transfer.

Although a multilateral agreement to cut emissions has been hard to achieve, there have been many local, regional and national unilateral initiatives to mitigate climate change. Such unilateral initiatives are more likely to emerge at sub-national levels, which requires effective local powers as in federal political systems. The question is how should policy be designed to respond to such local or national initiatives to ensure they can have a global impact.

We argue that an initially limited, unilateral commitment to cut emissions by a small group of nations (or individuals, firms, cities or regions within a nation) will stimulate innovation in technologies that can lower the cost of switching to low-carbon economic activities. Such innovation – together with a system for subsidising technology transfer – will alter the participation constraints of economic actors over time and result in a cumulative process of emissions reductions.

Stephen Pacala and Robert Socolow of Princeton University have outlined fifteen policies, which they call "wedges" because of the impact their implementation would have on the growth of emissions. Implementing seven of these wedges would cut that growth by enough to place the world on a path to stabilising the climate by around 2050.

If a high-emissions nation (or locality) implements some wedges within its borders, others can learn from the experience and use the innovations, whether they are policy innovations or technological innovations.

Subsidising the transfer of innovations that lower emissions can help local solutions become global solutions

For example, a city might introduce a set of measures (such as congestion charging or improved public transport) to encourage greater use of public transport. If some of these measures are successful, other cities elsewhere in the world can learn from its experience and implement similar measures.

At a national level, reducing the cost of generating electricity by wind or solar power potentially benefits many nations and not just the one within whose borders the innovation takes place. In other words, in any unilateral initiative of this kind, there are significant "positive translocational externalities."

Nations on their own may never achieve a complete switch to low emissions, but a well-designed learning process that builds and strengthens positive spillovers across nations may eventually deliver a global switch. A global funding mechanism to subsidise technology transfer, together with the adoption of open technology standards, may well be the essential ingredient here to encourage participation by nations that are otherwise reluctant to make the switch.

How should policy empower economic actors to act unilaterally to cut emissions? How might unilateral initiatives interact with existing multilateral agreements? And how should the sequencing, coverage and design of these local, national and regional climate change agreements be structured to minimise the delay in the global transition to a low-carbon economy? Our research continues to address these challenging questions.

Publication details

This article draws on Technology, Unilateral Commitments and Cumulative Emissions Reduction, by Shurojit Chatterji and Sayantan Ghosal, CESifo Economic Studies 55:2, pp. 286-305, June 2009, and "Unilateral Measures and Emissions Mitigation," work in progress by Shurojit Chatterji, Sayantan Ghosal, Sean Walsh and John Whalley.

The authors

Shurojit Chatterji is at the Singapore Management University. Sayantan Ghosal is professor of economics at the University of Warwick. Sean Walsh is at the Centre for International Governance Innovation (CIGI). John Whalley is at CIGI and the Universities of Western Ontario and Warwick.