CER 2026 Essay Contest 1st Place: Action and Alliance: The Economics of International Climate Policy
Each year, countries gather at the United Nations Climate Change Conference in an attempt to solve one of the most crucial global problems in modern history, yet fail to do so due to geopolitical friction, extensive costs, and conflicting interests. Although achieving an emission-free environment may be costly, climate stability is a public good, meaning it is nonexclusive and nonrival. According to public goods theory, one country’s enjoyment or benefit of environmental stability does not prevent others from having the same, and no country may be denied or excluded from the benefits available, even if they do not collaborate to achieve it. This engenders the free-rider problem, in which countries exploit a public good, such as climate stability, without contributing their fair share. The free-rider problem has led to low-effort, voluntary proposals in international environmental policy that fail to address growing threats on a global scale. In order to sustain long-term international cooperation against climate change, nations must solve the free-rider problem by addressing climate policy on a domestic level, then creating viable positive and negative enforcement on an international level.
In order to escape the free-rider problem, countries must first acknowledge that they are facing a phenomenon known as “prisoners of the wrong dilemma.” As explained by Michaël Aklin and Matto Mildenberger in Global Environmental Politics (2020), countries behave as if experiencing a prisoner’s dilemma, afraid that other states will not cooperate, when in truth, they are facing distributive conflict in which politicians encounter internal pressures such as lobbying, economic conflicts, and re-election incentives. When politicians are occupied with domestic allocation concerns, they are more likely to dismiss climate policy shortfalls as part of larger international conflict. As a result, weaker global initiatives are taken, harming not only a politician’s constituents but humanity as a whole. This consequence can be offset by emphasis on climate change policies from a country’s voters, causing political figures to experience public choice theory. When political will towards strengthened policy increases, lawmakers will act in its favor in hopes of reelection and rational self-interest. Concepts from public choice theory can be leveraged to provide political motivation to leaders to negotiate global environmental legislation more effectively. Inevitably, deeper engagement will result in more meaningful change on a broad level (Leiserowitz, 2020). When national political entities choose to ignore potential free-riders and focus on their own self-interest, states are able to break out of the prisoner’s dilemma and treat climate change like a distributive issue, rather than a purely international one. Ongoing activism and immense internal pressures then become a dominant factor in a state’s capabilities to initiate international negotiations. When coupled with political forces willing to view climate change as a domestic threat, it will create the conditions needed for collaboration to become feasible on an international level. It is important to acknowledge that this perspective of climate change will likely incur initial adoption by a select few highly motivated countries, but such a change can be revolutionary in altering international legislation as a whole.
While acknowledging the “prisoners of the wrong dilemma” theory can serve as an introductory step to implementing stronger climate change policy, it fails to inherently solve the issue for countries with less motivated populations, meaning the free-rider problem may continue to exist. In this case, viewing the issue through the lens of behavioral economics, particularly incentive theory, can resolve the issue. Politicians of motivated countries can band together to form “climate clubs” to cooperatively address the issue (Nordhaus, 2015). These clubs enforce positive incentives, such as prestige, decreased trade barriers, and set carbon prices, which can in turn serve to offset costs of choosing environmentally-friendly processes and promote endogenous technological development. Additionally, club membership can improve domestic political support and provide a tangible incentive for politicians to continue working under the public choice theory system. Negative consequences, such as carbon tariffs, trade sanctions, and legal action, can also pressure nonmember countries to take action. However, critics of climate clubs argue that they lack political feasibility, as they create inadequate coverage through difficult formation steps (Falkner et al., 2021). This view of climate clubs fails to address that credible enforcement and coordination tactics change the conditions under which nonmember countries make decisions. Creating climate clubs not only eliminates prisoner’s dilemma by tangibly proving the capabilities of nations to act individually, but completely restructures the payoff matrix for nonmember countries. Benefits of joining begin to outweigh increasing costs, incentivizing membership and allowing clubs to function as coordination tools. When the environment in which nonmember states make decisions is altered, there are more potential outcomes that lead to feasible equilibria. Climate clubs allow “catalyst” countries to effectively target free-riders and create realistic conditions for others to join.
International climate cooperation can reach stable equilibrium through a two-tier approach, where breakthrough nations begin by treating climate change as a domestic allocation issue, gradually incentivizing other nations to do the same through the formation of climate clubs. When politicians face pressure to look beyond international gridlock and recognize climate change as a domestic threat, they begin to act in rational self-interest, enacting stronger global policy that breaks the prisoner’s dilemma. By forming climate clubs, politicians cooperate to gain a higher payoff as opposed to an initial Nash equilibrium. While critics argue clubs are unfeasible, they often fail to account for the changes in political landscape that occur when breakthrough nations take independent action before forming alliances. Climate clubs create strong positive and negative enforcement mechanisms, under which proactive countries benefit and nonmember countries face mounting obligations to join, eliminating the free-rider problem. Over time, clubs transform into coordination tools, leveraging the payoff matrices of other countries. Everyone begins playing for the same team, encouraging effective long-term collaboration. International climate action must begin locally, with citizens urging politicians to first view climate change as a community issue. Once climate change is addressed locally, global cooperation follows suit.
References:
Aklin, M., & Mildenberger, M. (2020). Prisoners of the Wrong Dilemma: Why Distributive Conflict, Not Collective Action, Characterizes the Politics of Climate Change. Global Environmental Politics, 20(4), 4–27.
Falkner, R., Nasiritousi, N., & Reischl, G. (2021). Climate clubs: politically feasible and desirable? Climate Policy, 22(4), 1–8. https://doi.org/10.1080/14693062.2021.1967717 Leiserowitz, A. (2020, June 30). Building Public and Political Will for Climate Change Action. Yale School of the Environment.
https://environment.yale.edu/news/article/building-public-and-political-will-for-climate-change-action
Nordhaus, W. (2015). Climate Clubs: Overcoming Free-riding in International Climate Policy. American Economic Review, 105(4), 1339–1370. https://doi.org/10.1257/aer.15000001