Controlling Global Warming

Controlling Global Warming

Perspectives from Economics, Game Theory and Public Choice

New Horizons in Environmental Economics series

Edited by Christoph Böhringer, Michael Finus and Carsten Vogt

In this exhaustive study, the authors break new ground by integrating cutting edge insights on global warming from three different perspectives: game theory, cost-effectiveness analysis and public choice. For each perspective the authors provide an overview of important results, discuss the theoretical consistency of the models and assumptions, highlight the practical problems which are not yet captured by theory and explore the different applications to the various problems encountered in global warming. They demonstrate how each perspective has its own merits and weaknesses, and advocate an integrated approach as the best way forward. They also propose a research agenda for the future which encompasses the three methods to create a powerful tool for the analysis and resolution of global pollution problems.

Chapter 1: Introduction

Michael Finus

Subjects: economics and finance, environmental economics, environment, environmental economics

Extract

Michael Finus Global warming is believed to be one of the most serious environmental problems for current and hture generations. This shared belief led more than 180 countries to sign the Framework Convention on Climate Change in Rio de Janeiro in 1992, which declares that serious action should be taken to reduce man-made greenhouse gas emissions. To this end, the Kyoto Protocol was signed in 1997 by 38 countries which agreed to reduce their greenhouse gas emissions by an average of 5.2 per cent compared to 1990 emission levels by the target period 2008-2012. The 38 countries comprise mainly industrialized countries, including the US, all countries of the European Union and some other European countries like Norway and Switzerland, Australia, New Zealand, Canada and Japan; and a few countries in transition to a market economy such as Russia and Ukraine. Since its signature, the Protocol has been widely celebrated as a major step towards mitigating global warming. In particular, economists were in favor of the Protocol, since it constitutes the first international environmental agreement which seeks to achieve environmental targets using market-based instruments. However, four years after the signature of the Kyoto Protocol, euphoria has turned into great disappointment. Despite many negotiation rounds, the parties still could not agree on the final details of the design of the Kyoto Protocol, and hence it has not been ratified by any of those countries which committed themselves to binding abatement targets and it is therefore not yet in force. Even worse, most...