The free rider problem in the context of the climate crisis
The requirements of the Paris Climate Agreement are insufficient (seeStatus Quoto limit the average global temperature increase to 1.5°C. If all countries implemented their self-imposed targets, average global warming would likely reach over 3°C. Currently, however, not even these targets are being met, so 4°C or 5°C could well be exceeded.
The atmosphere is currently being used as a dumping ground for emissions which is open to all - it is a global commons, but it cannot be used indefinitely as a storehouse for greenhouse gases. The climate crisis is a Tragedy of the Commons.
Each country bears the full cost of its emission reductions, but because the damage and effects of climate change are globally distributed each country only reaps a portion of the benefits. If each country had its own atmosphere, the problem would not exist.
National and European climate policies are important, but without global climate policy, the fundamental problem cannot be solved.
Let's take a look at this problem in a thought game....
The climate game
Imagine 10 countries, each with 10€ at their disposal.
- Each country can put as much of the 10€ as it wants into the common climate pot.
- The money in the climate pot is doubled and divided equally among all.
- Money that is not given into the pot is kept by the countries for themselves.
Ideally, everyone would invest 10€, so that in the end all countries receive 20€ (10 x 10€ = 100€, 100€ x 2 = 200€, 200€/10 = 20€). Each country would therefore benefit equally from this cooperation.
If all other countries would give 10€ into the climate pot and one country nothing, then this country would stand at the end with 28€ (90€ of the other countries were doubled, the 180€ were divided on 10 countries and the "egoistic" country has additionally still its 10€ left).
The single country always gets back only 20% of the money it invested itself (From 1€ doubled and divided among 10 countries, the country gets back only 20 cents). So it is profitable to keep the money and hope that the other countries will fill the climate pot. This country would "free ride" and take advantage of the other countries. If all countries act this way, there will be no cooperation. None will invest money and instead of the 20€ with full cooperation, all will only keep their 10€. So the free rider problem prevents cooperation.
This representation is highly simplified and the climate crisis is much more complex. However, the free-rider problem is pervasive: there is little incentive for a selfish country to engage in climate action. The Paris Agreement does not include a means of ensuring cooperation. Although a common target was set, it is still up to each country to decide how much it wants to contribute with regards to reaching the 1.5°C target.
It is clear that problems surrounding global commons needs global cooperation
How can the free-rider problem be solved?
To solve the free-rider problem, there must be a mechanism that enables cooperation. Cooperation requires two things above all: reciprocity and trust.
Reciprocity means something like "I will if you will" or "We will do it if you will". The game with the 10 players can be changed via a reciprocal mechanism so that cooperation makes sense for all sides at once.
- All countries propose a common investment amount.
- Only the smallest amount proposed by all countries must now be given into the climate pot.
The question everyone asks is: How much do I want to give, knowing that everyone else will give the same amount? In this case, everyone comes to the conclusion that they should give 10€ each. If someone now deviates downwards, he cannot free-ride and take advantage of the others, because everyone else will automatically give less.
Such a reciprocal mechanism can ensure that countries finally start to solve the climate crisis together. A global CO2 price that is negotiated like in the game makes sense for this.
- A global minimum price is negotiated, which all countries introduce themselves, leaving it up to them to decide how.
- The amount depends on the lowest price offered, making free-riding impossible.
In such negotiations, all countries ask themselves the question: What would be the ideal CO2 price from my point of view if all the others also introduced this price?
Arguments such as "China won't do anything", or "Then production here will become too expensive and companies will go to China" are not a problem in such an agreement. However, enough countries have to participate. Countries that do not join the agreement can be charged climate tariffs. This would give them an incentive to join and reduce the incentive for companies to relocate their production facilities to these countries. In addition, it would make sense to set up a green fund linked to the price. Countries whose emissions are above the per capita average pay a price-linked amount into the fund for each ton; countries that are below the average receive this amount. In the first round of negotiations for the agreement, a factor g could be negotiated; this indicates what percentage of the CO2 price must be paid into the fund. Only then will the price be negotiated. This would also enable economically weaker countries to contribute to a higher price, as they would receive financial transfers depending on the price. All national revenues that do not go into the green fund as transfers can be used by the countries for their own purposes. The only important thing is that no subsidies are given to CO2-intensive technologies/sectors. Regardless of how the CO2 price is introduced nationally, it is always the net price that counts for the obligation. A tax of 50€/t, with a simultaneous subsidy elsewhere of 20€/t, only counts as 30€/t. It is important that the national prices are transparent and verifiable for all, transparency creates trust, which is the second important condition for stable cooperation.