A Proposal to Reform the Kyoto Protocol: the Role of Escape Clauses and Farsight

A reform to the Kyoto Protocol that allows signatories to pay a ne instead of meeting the target level of abatement would achieve three goals. First, it would defuse one U.S. objection to the agreement: the concern that the cost of achieving the target might turn out to be extremely high. Second, unlike other cost-reducing measures (such as trade in pollution permits) it would increase the equilibrium number of signatories in a noncooperative participation game. Third, it would make it easier to force signatories to comply with their obligations. We study the participation game under an escape clause using both a Nash Equilibrium and the concept of a stable set when nations are “farsighted”. We compare our results to a prominent model of International Environmental Agreements (IEAs) which nds that the equilibrium size of an IEA tends to be small when the bene ts of cooperation are large. We show that with an escape clause and a properly chosen level of ne, a large IEA can be formed even when the bene ts of cooperation are large.