Game Theory in Climate Change Negotiations
Though climate change is a pressing issue facing our world, not much is being done about it. Advocates of greenhouse gas emission reductions find the planet a victim of the tragedy of the commons—the payoff for an individual country not complying with reductions is very high, but when each country follows this logic, the payoff is disastrous. Why is this the case? Despite knowing that a global reduction in temperature is needed and reducing greenhouse gas emissions is the most effective way to accomplish this reduction, the countries who vow to reduce their emissions have collectively pledged to reduce emissions by far less than what is required to reach the projected “safe” temperature.
Game theory can be used to explain this counterintuitive behavior. Say the countries are players, and their options are either to spend a certain amount on emission reduction, or not spend at all. The countries each have a given amount of money to start with, and at the end of the game, they get to keep their savings, plus interest on the money in the pool for emission reduction. However, if there is not enough money in the pool, every player/country incurs a loss to their national savings. In a game where there is minimum value required to be in the pool for countries not to incur a loss, it would make sense for all the countries either to collaborate and collect the interest, or for all of them to refrain from contributing and use their saved money to offset the loss for not meeting the minimum. These two options are the Nash equilibria for this game.
Real life, however, is a little bit more complicated. Scientists are not sure at what point the global climate will be destabilized. To reflect this in the Game example given above, we make the minimum value required for the countries not to incur a loss variable. Now that this minimum threshold is variable, there is an incentive for countries to cheat. If every country pledges to put in a certain amount of money into the common pool, an individual country can feel like it can skimp a bit, and put in a little less money than everyone else. Chances of the pool not meeting the minimum in this case are very low, but the cheating country’s chances of walking away with extra money are high. However, since everyone will reason this way, the Nash equilibrium in this situation is for no one to put in any money.
This second game more closely resembles real life negotiations. Because the short-term payoff for a country to not invest in reducing emissions is so enticing, countries are reluctant to actually invest in reducing their emissions. Essentially, for greenhouse gas emissions to be reduced, reduction policies are going to have to be less voluntary through the use of sanctions or smaller agreements between only a small number of cooperative countries.
Source: https://www.sciencenews.org/article/game-theory-suggests-current-climate-negotiations-won%E2%80%99t-avert-catastrophe