EU-California Environmental Agreements: the role of trade in emissions permits and escape clauses

Monday, July 30, 2018

Game theory helps to explain the relation between the structure of multi-national or multi-regional environmental agreements and the success of those agreements. Trade in emissions permits has ambiguous and in some cases surprising effects on both the equilibrium level of abatement, and on the ability to persuade nations or regions to participate in environmental agreements. An escape clause can promote the success of such an agreement, by reducing risk, easing enforcement problems, and most significantly, by providing leverage that encourages participation in the agreement.

Larry Karp
Jinhua Zhao

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