Donald Trump’s Paris Agreement pullout: Masterstroke, death knell, or farce?
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The US exit from the Paris Agreement has been greeted with howls of protest. The remaining signatories have registered their righteous indignation and vowed to press on. Unwittingly, they may have vindicated President Donald Trump’s stand.
A reduced level of greenhouse gases falls under the category of a “global public good”, as the stock of greenhouse gases in the atmosphere affects everyone equally and without exception. The US is the largest contributor to cumulative emissions since the beginning of the industrial revolution but China is second in terms of current annual contribution, with 14% of annual emissions.
The Paris Agreement, a successor to the Kyoto Protocol, aims to cap the increase in global temperatures over pre-industrial levels at 2 degrees Celsius. It operates through a set of intended nationally determined contributions. These reductions in emissions are self-selected and are not binding in the sense that non-compliance is not subject to any sanctions.
Cooperative game theory provides a useful lens into the stability of treaties like the Paris Agreement. A treaty is said to be stable if it is not possible for any country or set of countries to break away and get a higher pay-off than the one they get by staying within the treaty. The pay-offs of the countries under a stable treaty are said to be part of the “core” of the game.
In order to assess whether breaking away makes sense for a country or a group of countries, it is necessary to estimate how the remaining countries would behave after a rupture is effected. The view adopted by game theorists Parkash Chander and Henry Tulkens in a series of papers starting in 1997 is that the remaining countries will break apart, i.e. the resulting situation would consist of the breakaway coalition and a set of singletons that would act to maximize their self-interest. This assumption stacks the odds against any rupture as countries breaking away must contemplate a future in which global emissions will remain at unsustainable levels. Chander and Tulkens show that with this definition an efficient level of emissions through a treaty comprising all countries is part of the core.
However, this is not how the current episode in the Paris Agreement appears to be playing out. China and India, the first, and fourth largest polluters in the world, respectively, had played the role of spoilers in the Kyoto Protocol. But, today, they have become the biggest sponsors of a global treaty along with the European Union. China is keen to assert its global leadership and has been making significant investment in developing solar technology. India is the world’s third biggest market for solar power.
In this situation, when it appears that major countries will help the agreement survive, the US exit can be seen as good economics and a canny appreciation of the dynamics of other major emitters. It enables the US to enjoy the benefits of emissions reductions made by others without bearing the cost, although it remains to be seen how the decisions of US states and municipalities to abide by aggressive reduction targets mitigate the impact of Trump’s decision.
But a climate deal is not about negative externalities due to greenhouse gases alone. The world is at the cusp of an irreversible technological shift from fossil fuels to renewable sources of energy. Staying engaged would have allowed the US to steer the direction of green technologies towards its own spheres of comparative advantage, reserve markets within the US for its technology companies to allow them to create economies of scale, and open up world markets for its green technology products. It is possible the US could miss out on some of the $1.4 trillion global business opportunity that the global low-carbon economy represents. More importantly, it could lose its position as the leader of the liberal world order.
In any case, it could be too early to call the US attempt to act as a free rider on the climate deal a success. As thinkers from Robert Aumann to Elinor Ostrom have emphasized, a critical factor for the success of any treaty is the presence of sanctions for non-compliance. One of the causes of the success of the 1989 Montreal Protocol to curb the depletion of the ozone layer was that it specified punitive actions against defaulters.
The Paris Agreement, too, will only survive if the remaining signatories are able to make the US pay some price for its exit. The obvious measure of increasing taxes on the export of crude oil to the US is unlikely in the present geopolitical scenario. Restrictions in the sphere of trade and technology cooperation could be explored but may have limited effectiveness vis-à-vis a protectionist Trump administration. Hence, the next few years could well see a watering down of the climate deal with fossil fuel exporters like Russia and the Middle East reverting to lip service.
The Paris Agreement was consciously made flexible to bring all countries on board and to keep them in the fold even if their priorities changed. The Trump administration could have remained party to the agreement while still pursuing its policy goals. The decision to make a visible and very public break reflects Trump’s proclivity to adopt sharp policy positions, his preference for hard military power over soft power, and his desire to compensate for the botched exit from Obamacare.
Or perhaps, we are witnessing “a tale told by an idiot, full of sound and fury, signifying nothing” except the desperate determination to keep a presidency alive, despite the gathering signs of a global catastrophe.
Rohit Prasad is a professor at MDI, Gurgaon, and author of Blood Red River. Game Sutra is a fortnightly column based on game theory.