Karen Pittel is the Director of the Ifo Center for Energy, Climate and Exhaustible Resources in Munich, and also a Professor of Economics and the University of Munich. Her talk was about her work which seeks to explain why countries follow the climate policies they do, and which dilemmas face them.
The general case of a Social Dilemma is this: how do we prioritise resource use? We must decide on allocation between the short term and the long term. Individuals must choose whether to cooperate for the good of the group, or to defect for personal gain. This is called a free-rider problem and refers to the situation where people in group benefit from the efforts of others, but contribute nothing themselves.
Tragedy of the commons: grazing problem. People usually just get what they can. (my view: only in an anonymous system – not ones where they’ll be socially punished.)
Climate change can be considered to be a social dilemma in this sense. The common resource is the climate. To cooperate in order to protect it is a choice for individual countries; there is no global enforcement mechanism. However in countries that choose to legislate to protect the climate it works because they do have enforcement within their borders.
Canada is an example of a country that chose to defect for national financial gain, when it became clear they would not meet their emissions targets due to the exploitation of tar sands oil.
Pittel suggests that the rational choice for a country is to free-ride. So she asks, “why are some countries not just hoping others will do heavy lifting? Is voluntary cooperation rational?”
Game Theory says, if number of players is large, voluntary cooperation to reach substantial contribution is less likely. Don’t expect too much, in other words! However if the number of players is small, cooperating is more profitable than the other options.
For an example of a real-world small game, she points to the recent US-China agreement, which has a good chance of working because it’s two countries. It’s “too small to fail” in the words of the Economist.
It seems to work. Although world emissions have increased by 50% on 1990, China’s emissions didn’t rise last year. The climate is an increasingly important consideration for that government. Since 1990 emissions from the USA and EU have both declined.
The rationality of Voluntary Mitigation can be considered as a case of the fundamental utility maximization problem of a rational individual from classical economics. Mathematically this is expressed as an integral over time of a utility function containing variables that represent consumption, leisure, etc, integrated over time.
Is EU action rational? There are pros and cons to mitigation. It may result in a short term reduction in domestic growth and income. It may incentivize other countries to do less for climate change, if they see us doing more. But it also could reduce damages to Europe as a result of climate change later.
Pittel is interested in exploring and quantifying indirect benefits in her mathematical utility function. She spoke of an altruistic “warm glow” that individuals get from mitigating (such as choosing a green electricity supplier), which may also work for policymakers.
Pittel entered into an analysis of social dilemmas using game theory. Different types of social dilemmas can be modeled using different types of game and numbers of players. The Chicken Game is a good representation of climate change because in the case of universal inaction, the consequences are catastrophic. She also gave an example of two people playing the Prisoner’s Dilemma game. She represented the game using matrices to simply illustrate different scenarios. In this game we can integrate social norms: these give a higher cost to non-cooperation. Social norms increase the prospects of cooperation.
The perception of fairness plays a major role in the context of climate negotiations. There is however a problem: no general agreement about fairness principles. Some principles are agreed upon: the polluter pays, and exemptions for the poorest countries. Fairness perception depends on the situation of each player, and influences their behavior. That is, if they feel fairly treated. EU usually seen as fair in negotiations compared to other developed and emerging major countries. This influences the poorer countries to more cooperative behavior.
In this analysis, Rabin introduced a “kindness” function in 1993: this measures how kindly one player treats another. Players tend to pursue strategies that punish/reward others for breaking/following social norms. For negotiators from developing countries, historical emissions play a much bigger role in fairness perception than current emissions.
If developing countries see rich countries taking responsibility for their history, their resentment is lower. On the other hand being expected to take too much responsibility reduces the chance of rich countries continuing to cooperate, so a balance must constantly be struck.
Thus, deliberately increasing the perception of fairness is a rational strategy for the EU. Which is the most strategic option to increase fairness perception? Spending for mitigation or adaptation in developing countries?
If we finance mitigation you’re helping these countries and yourself. However if the spending is seen to be financing mitigation in poor countries in order to avoid more financially and politically expensive mitigation decisions at home, the effect on perception of fairness is unclear. And it probably increases resentment on their part.
On the other hand, giving money for adaptation is very good for fairness perception on the part of poor countries. There’s no clear profit motive for the rich countries, so appears to be irrational on the surface, but actually pays off in terms of long term cooperation, because it is an example of taking historical responsibility. At COP16 countries including Germany pledged $100 billion for adaptation measures in poor countries.
Pittel then discussed other possible measures to increase prospects for cooperation: Punishment of non-cooperative countries by increasing customs taxes. Technology development and transfer to poorer countries shows good intentions. Increasing public awareness to strengthen social norms.
However problems for this research remain. Voluntary cooperation is happening, but not enough to reach the 2 degree goal set in Copenhagen. Basically we need to find the indirect benefits of these measures to prove that they are rational.