Pledge-and-Review Bargaining

Summary

The Paris Agreement differs from the Kyoto Protocol in several ways: (1) the Kyoto Protocol has been referred to as a top-down agreement, while the Paris Agreement is sometimes referred to as bottom-up, partly because each party can decide on its own national commitment, without making it conditional on what other countries pledge. (2) While only 37 countries faced emission cuts in Kyoto’s first commitment period, nearly every country in the world has pledged to contribute to the Paris Agreement. (3) For one reason or another, the top-down approach was preferred in the 1990s, while the bottom-up approach was chosen in the 2010s. (4) The Kyoto Protocol’s emission cuts were “legally binding,” while they are not for the Paris Agreement. (5) Despite all these differences, the chosen commitment-period length was five years for both agreements.

This paper provides a game-theoretical model of pledge-and-review bargaining. It turns out that this way of formalizing the first difference (1) between the agreements can be used to explain and rationalize the other differences: (2)–(5). The model shows that pledge-and-review bargaining leads to less ambitious emission cuts. The lack of ambition makes it less costly to participate in the agreement, and thus the coalition size ends up being larger. The larger coalition size is the main benefit of the pledge-and-review procedure, and it is thus especially attractive if there is a large number of potential participants in the world. Arguably, the number of relevant players, when it comes to climate change, is larger today, after several countries that were less developed in the 1990s have become emerging economies. The theory can also explain why it was mainly the developing countries that wanted to proceed with Kyoto, while developed countries preferred the new architecture.

The framework predicts that the emission cuts are more likely to be self-enforcing if they are negotiated according to pledge-and-review, rather than according to a more standard bargaining procedure. This prediction can rationalize why the emission cuts in the Paris Agreement did not have to be defined as legally binding, even though they were so for the Kyoto Protocol.

Finally, although the ideal commitment period length depends on many things in this framework, it is exactly the same for the two agreement designs, it turns out.

The trade-off between the deep-but-narrow Kyoto Protocol and the broad-but-shallow Paris Agreement leads to the following normative lesson. The ultimate benefit of “club goods,” such as linkages between trade and climate policy, is not necessarily that participation will increase, but that the coalition can choose a more ambitious (top-down) bargaining procedure without risking that the coalition size will fall by too much.