LAUSR

Significance Global agreements on climate change date back to the Kyoto Protocol in 1997, yet little substantial coordinated abatement has taken place. Free riding is a major hurdle in the solution of global externalities and is at the heart of the international failures to deal with climate change. The present analysis presents a dynamic model of a climate club and shows that club incentives through tariff penalties and rapid decarbonizing technological change can achieve the international objectives of governments. A proposal to combat free riding in international climate agreements is the establishment of a climate club—a coalition of countries in a structure to encourage high levels of participation. Empirical models of climate clubs in the early stages relied on the analysis of single-period coalition formation. The earlier results suggested that there were limits to the potential strength of clubs and that it would be difficult to have deep abatement strategies in the club framework. The current study extends the single-period approach to many periods and develops an approach analyzing “supportable policies” to analyze multiperiod clubs. The major element of the present study is the interaction between club effectiveness and rapid technological change. Neither alone will produce incentive-compatible policies that can attain the ambitious objectives of international climate policy. The trade sanctions without rapid technological decarbonization will be too costly to produce deep abatement; similarly, rapid technological decarbonization by itself will not induce deep abatement because of country free riding. However, the two together can achieve international climate objectives.