Understanding Climate Change Action Plan: A Coase Theorem Perspective
Introduction
Olson developed his theory of groups around the consolidated benefit versus spread costs to the public in his book called ‘The Logic of Collective Action’ (1971). Accordingly, society faces collective action problems (CAP) that are caused by the overrepresentation of minority interests through lobbying and other means of political influence such as advocacy groups. In this sense, CAP yields a free-rider problem that can be understood as the inefficient allocation of resources due to only the small minority benefits while the majority contributes to the collective action via taxation. Climate change can be named as one of the most persistent collective action issues that arise in recent history (e.g. Harvey 2021). Serious disagreements between sovereign nation-states have created a deadlock that causes indirect costs for the parties involved in discussions. Consequently, Ronald Coase conceptualized the problem of social cost which is also referred to as the Coase theorem in the literature (e.g Ellingsen and Paltseva 2016). Coase theorem asserts that in the presence of low transaction costs, bargaining and reaching a consensus between parties make sides better off without making anyone worse off. The theorem is essentially applied in the case of externalities which could have negative or positive consequences as the externality is an indirect cost or benefit to an uninvolved third party. Coase theorem has its applications in various disciplines such as law (e.g. Parisi 2003), economics (e.g. Acemoglu 2003), and international relations (e. g. Cooper 1995).
From this perspective, the Coase theorem can be considered in response to environmental issues such as climate change which is regarded as a negative externality that requires collective action plan on a multilateral ground. Considering this, United Nations Climate Change Conference (COP) can be mentioned as an important effort to reduce transaction costs between states to overcome the challenges of environmental issues. Since 1995, ongoing conferences and developed strategies have shown that the transaction costs between states are relatively high and bargaining power between states is quite limited considering different political agendas as well as distinct developmental progress amongst parties (e.g. Agrawala and van Aalst 2006). In line with this, COPs have been under criticism because of the very limited progress that is made as opposed to what the scientific community has concluded to avoid the dangers of climate change (“COP26” 2021). Multilateral agreements between states are often limited by the information asymmetry which is guided by a non-cooperative realist understanding of the world politics that often undermines the hardly established trust amongst different nations. Namely, ‘moral hazard’ (Arrow 1973) occurs as some states have no short-term incentives for implementing a sustainable development plan while all the other states have to bear the consequences.
In this context, Ikenberry emphasized the growing importance of reform and reorganization in the liberal international order (2009). Moreover, Ikenberry suggests three developmental points in a new liberal international order. Firstly, becoming less hierarchical and increased its scope of operations, secondly enriching the legitimate power of the international authority, and lastly rebuilding the authority at the international level through democracy and international law (2009). Against this background, this paper aims to navigate the current state of affairs in the combat of climate change. Based on this, the paper aims to uncover why the United Nations (UN), being one of the most crucial international bodies in tandem with other climate change actors, fails to implement efficient solutions to the climate crisis in line with what the Coase theorem suggests.
Global Climate Change Action Plan and Transaction Costs Between States
Being one of the most prominent intergovernmental organizations, the UN is at the center of various functions to accomplish international cooperation amongst nations. While the depth of the organization touches a vast variety of international problems such as peacekeeping and security, arguably global climate change action has become an obtrusive task for many states (e.g. den Elzen et al. 2013). Since the first assessment report that was completed in 1990, Intergovernmental Panel on Climate Change (IPCC) can be named as the first spark in efforts of creating a new framework that would have an enormous impact as evident from the establishment of the United Nations Framework Convention on Climate Change (UNFCCC) and the first conference of the parties (COP) being held (Union of Concerned Scientists n.d.).
Looking at figure 1.1, global temperatures continued to rise at an unprecedented level that reflects the challenges to international cooperation on the grounds of COP since the first efforts of combating climate change to this day. It can be said that these difficulties mainly arise from the dual-use dilemma of climate change and development (e.g. OECD 2005) due to inequalities between so-called ‘under-developed’ and ‘developing’ countries. However, short- term developmental plans of the countries can inform devastating policies that undermine climate action efforts also in ‘developed’ regions such as Europe. Increased efforts of lignite mining in Germany despite being the highest carbon emitter option (Eurostat n.d.), and acceptance of biomass as a renewable energy form by the European Union (Dabbous 2021) manifests that short-term gains by the state-centric politicians underwrite the lack of commitment to climate change global action plan.
The picture that is painted here is what the Coase theorem indicates as asymmetric information, which does not allow parties to equalize power differences between sovereign states on common ground. As a result, the free-rider problem, which leads to the use of non- excludable and non-rivalrous goods by non-contributing parties, becomes apparent through explicit and implicit policy-making mechanisms of the countries that do not benefit from international cooperation. In other words, the application of the climate change action plan could lead some countries to “free-ride” on initiatives that they do not contribute to. Due to high transaction costs between countries, “[…] parties agreed to continue discussions on long- term finance through to 2027” (“COP26 Negotiations Explained” 2021, 9). In this respect, prolonged negotiations on sustainable development goals display how not so well-defined ‘property rights’ of climate change action plan led to premature actions and extended discussions to reach a consensus. Based on the decision subsection CMA.3 in Glasgow Climate Change Conference, ‘new collective quantified goal on climate finance’ can be named as the effort to tackle this problem as it offers a well-defined structure in terms of how parties can agree on the capacity-building efforts on the technical level (UNFCCC 2021). Since the latest IPCC assessment report was dubbed by the UN secretary-general as “code red for humanity” (António 2021), from the Coase theorem perspective, it appears that COP26 aimed at bringing countries to agree to efficient solutions through written agreements that resemble a “private contract” between states by functioning as a stronger document than previously outlined thanks to the public accountability of the attending parties.
The Sixth Assessment Report of IPCC firmly established the physical understanding of climate change that aims to inform policymakers with the latest scientific understanding of the crises. IPCC report noted that “natural drivers and internal variability will modulate human- caused changes, especially at regional scales and in the near term, with little effect on centennial global warming” (“Climate Change 2021: The Physical Science Basis” 2021). In line with this, climate security (e.g. Brown and Funk 2008) has gained importance as the countries started feeling the detrimental effects of climate change in food and water supplies (e.g. Dania et al. 2016). Moreover, increased energy and resource sharing between countries indicates how economic activities can lead to bargaining power between actors, therefore, reducing the transaction costs in favor of circumventing climate change. North Sea Link (NSL) could be mentioned as an instance of how subsea interconnector linking mechanisms (e.g. Statnet n.d.) can provide the forward-looking innovations that the international community needs. In this sense, one can argue that regional policies enable higher budget joint projects between states. In this mission, non-governmental organizations play a crucial role as these organizations mobilize the communities in local and remote places as well as allow for community integration when faced with challenges of climate change. Accordingly, EcoPeace in the middle east can be named as one of the most significant initiatives in the region as it shows that when obstacles to bargaining can be tackled through low transaction costs, Pareto efficient outcomes that make everyone better off could be achieved. In this sense, EcoPeace embodies how hostile realist attitudes of the states could be shifted when facing the dangers of climate change as it forced Jordan, Palestine, and Israel to find a common ground to cooperate.
While some of the regional actors demonstrate how cooperation has an inherent capacity to prevent further impacts of climate change, the policy agenda of the bigger CO2 emission contributor countries continue to guide the process. For instance, China, being the most CO2 emitting country in the world (Figure 1.2), is at the center of the climate change action plan together with other high CO2 emitter developing countries. As Yu and Zhu highlighted “[…] Western countries take China to be the world’s largest emitter and disagree with it having the largest developing country status and avoiding the burden for emissions cuts” (2015). While the ‘developmental differences’ between countries induce the acceleration of distinct economic development plans, the efforts of the Institute of Public and Environmental Affairs located in Beijing, China can be noted as their work showcase how economic growth and cutting carbon emissions can be balanced in the long run. The institution gathers ‘national environmental data for multi-stakeholder collaborations’ which is referred to as ‘blue map database’ that allows local and international companies to obtain critical information on six main categories: corporate environmental information that is compiled from government sources, environmental quality data that is gathered every day, climate change data for analyzing carbon peaked geo-locations, supply chain oversight information that aims to promote supply chain transformations to an eco-friendly model, green finance that lists environmental data for companies listed in HK stock exchange and lastly, public participation that is enabled through ‘blue map app’ (IPE 2020). Commonly referred to as being ‘the world’s factory (Lee 2021), China carries greater importance in the efforts for increased global green production capacity from demand to supply side. Based on this, one can argue that institutional efforts can be considered as an effort of reducing the asymmetric information problem amongst international and regional private companies, policymakers, and other involved actors such as non-profit organizations. In the long run, increased efforts for reducing the transaction costs amongst parties by improving the quality and integrity of climate action index would remain crucial for the efforts of the UN to implement efficient solutions to this crisis.
Future State of Affairs: A New Understanding of Liberal Internationalism
Global efforts to tackle climate change proved to be inefficient considering that pledges by the world’s biggest emitters (Figure 1.3) do not show enough commitment to limit total global warming to 1.5 degrees Celsius.
While increased efforts focus on regional and transregional problems in its scope, climate change is inherently a global problem that requires a high level of cooperation between countries. Furthermore, the negative externalities that arise due to climate change continue to affect various states while not everyone can benefit from the current state of global action plan due to power imbalances in the decision-making process. This is partly due to the countries being free to determine their own national goals according to the Paris climate agreement that was signed in 2015. According to the international energy agency “[…] the pledges by governments to date — even if fully achieved — fall well short of what is required to bring global energy-related carbon dioxide emissions to net-zero by 2050 […]” (“IEA” 2021). Considering these challenges, one can refer to what Ikenberry called “liberal internationalism 3.0” which is universal in its scope and expands membership in core governing institutions to rising non- Western states (2009, 74). As has been outlined, the international cooperation to this day did not reflect the full potential that further expansion of policy domains can achieve. In the short run, a transition to a ‘post-Westphalian sovereign’ system as Ikenberry suggested is crucial as the combat of climate change requires “[…] increasingly intrusive and interdependent economic and security regimes’ (2009, 74). By looking at the developments that occurred in the last decade, one can argue that the first phase of a new liberal internationalist idea is on the verge as climate change requires urgent action without the limitations of high transaction costs.
Conclusion
By conceptualizing climate change as a collective action problem that threatens the very existence of humanity, the application of the Coase theorem to the climate change action plan showed why the UN failed to implement efficient solutions to prevent climate change. By
looking at the actions that are taken until today, it is evident that the transaction costs between states lead to the asymmetric information scenario where ‘free-rider’ countries undermine the collective efforts. Regional and trans-regional cooperation examples show that a new liberal internationalism is possible and necessary as the current state of affairs is a double-edged sword that aims to establish cooperation on a global scale while promoting short-term political and economic gains within the state. Combating climate change requires a new way of structuring the international community to reach green development goals more promptly.
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