Regional and International Environmental Agreements: Emissions trade, safety valves and escape clauses

We explain how the structure of multi-national or multi-regional environmental agreements affect their chance of 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 policy and a safety valve policy have essentially the same properties when membership in environmental agreement is pre-determined, but they have markedly different effects on the incentives to join such an agreement. The two policies lead to a qualitative difference in the leverage that a potential member of the agreement exercises on other members.

Larry Karp
Jinhua Zhao
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