Editing IPCC:AR6/WGIII/Chapter-14 (section)

=== 14.2.2 Climate Clubs and Building Blocks ===

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A recent development in the literature on international climate governance has been increased attention to the potential for climate clubs ( [[#Victor--2011|Victor 2011]] ). [[#Hovi--2016|Hovi et al. (2016)]] define these as ‘any international actor group that (1) starts with fewer members than the UNFCCC has and (2) aims to cooperate on one or more climate change-related activities, notably mitigation, adaptation, climate engineering or climate compensation’. While providing public goods (such as mitigation), they also offer member-only benefits (such as preferential tariff rates) to entice membership. In practice, climate clubs are sub-global arrangements, and formal agreement by interstate treaty is not a prerequisite. Actors do not have to be states, although in the literature on climate clubs states have hitherto dominated. The literature has an essentially static dimension that focuses on the incentives for actors to join such a club, and a dynamic one which focuses on the ‘building blocks’ for global cooperative agreements.

The literature focusing on the static aspects of clubs highlight that they represent ‘coalitions of the willing’ ( [[#Falkner--2016a|Falkner 2016a]] ; [[#Gampfer--2016|Gampfer 2016]] ; [[#Falkner--2021|Falkner et al. 2021]] ), which offer a package of benefits, part of which are pure public goods (available also to non-club members), and others are club benefits that are only available to members ( [[#Hovi--2016|Hovi et al. 2016]] ). The members-only or excludable part can be a system of transfers within the club to compensate the countries with higher costs. For example, the benefit from participating in the club can be to have access to a common emissions trading system, which in general is more attractive the larger the diversity of the countries involved, although this is not a general result, as discussed in detail in [[#Doda--2017|Doda and Taschini (2017)]] . However, as costs and effort-sharing agreements are unsuccessful in a static context ( [[#Barrett--1994|Barrett 1994]] ), mainly due to free-rider incentives, several studies have proposed using tariffs on trade or other forms of sanctions to reduce incentives for free-riding ( [[#Helm--2000|Helm and Sprinz 2000]] ; [[#Eyland--2012|Eyland and Zaccour 2012]] ; [[#Anouliès--2015|Anouliès 2015]] ; [[#Nordhaus--2015|Nordhaus 2015]] ; [[#Al%20Khourdajie--2020|Al Khourdajie and Finus 2020]] ). For example, [[#Nordhaus--2015|Nordhaus (2015)]] uses a coalition formation game model to show that a uniform percentage tariff on the imports from nonparticipants into the club region (at a relatively low tariff rate of about 2%) can induce high participation within a range of carbon price values. More recently, [[#Al%20Khourdajie--2020|Al Khourdajie and Finus (2020)]] show that border carbon adjustments and an open membership policy can lead to a large stable climate agreement, including full participation. Table 14.1 presents a number of key results related to climate clubs from a static context.

'''Table 14.1 | Key climate club static modelling results.'''

{| class="wikitable"
|-
!
! Aakre et al. (2018)

! [[#Nordhaus--2015|Nordhaus (2015)]]

! [[#Hovi--2017|Hovi et al. (2017)]] ; [[#Sprinz--2018|Sprinz et al. (2018)]]

! [[#Sælen--2020|Sælen (2020)]] ; [[#Sælen--2020|Sælen et al. (2020)]]

|-
| Scope

| Transboundary black carbon and methane in the Arctic

| Global emissions

| Global emissions

| Global emissions

|-
| Modelling method

| TM5-FASST model (‘reduced-form air quality and impact evaluation tool’)

| C-DICE (coalition formation game based on a static version of the multiregional DICE-RICE optimisation model)

| Agent-based model

| Agent-based model

|-
| Border tax adjustment

| No

| Yes

| No

| No

|-
| Key results

| Black carbon can be more easily controlled than methane, based on self-interest; inclusion of non-Arctic Council major polluters desirable to control pollutants

| For non-participants in mitigation efforts, modest tariffs on trade are advised to stabilise coalition formation for emissions reductions

| Climate clubs can substantially reduce GHG emissions, provided club goods are present. The (potential) departure of a single major actor (e.g., USA) reduces emissions coverage, yet is rarely fatal to the existence of the club

| The architecture of the Paris Agreement will achieve the 2°C goal only under a very fortunate constellation of parameters. Potential withdrawal (e.g., USA) further reduces these chances considerably

|}

In a dynamic context, the literature on climate clubs highlights the co-called ‘building blocks’ approach ( [[#Stewart--2013a|Stewart et al. 2013a]] ,b, 2017). This is a bottom-up strategy designed to create an array of smaller-scale, specialised initiatives for transnational cooperation in particular sectors and/or geographic areas with a wide range of participants. As part of this literature, [[#Potoski--2013|Potoski and Prakash (2013)]] provide a conceptual overview of voluntary environmental clubs, showing that many climate clubs do not require demanding obligations for membership and that a substantial segment thereof are mostly informational ( [[#Weischer--2012|Weischer et al. 2012]] ; [[#Andresen--2014|Andresen 2014]] ). Also crafted onto the building blocks approach, [[#Potoski--2017|Potoski (2017)]] demonstrates the theoretical potential for green certification and green technology clubs. [[#Green--2017|Green (2017)]] further highlights the potential of ‘pseudo-clubs’ with fluid membership and limited member benefits to promote the diffusion and uptake of mitigation standards. [[#Falkner--2021|Falkner et al. (2021)]] suggest a typology of normative, bargaining, and transformational clubs. Before the adoption of the Paris Agreement, some literature suggested that the emergence of climate clubs in parallel to the multilateral climate regime would lead to ‘forum shopping’, with states choosing the governance arrangement that best suits their interests ( [[#McGee--2006|McGee and Taplin 2006]] ; [[#van%20Asselt--2007|van Asselt 2007]] ; [[#Biermann--2009|Biermann et al. 2009]] ; [[#Oh--2017|Oh and Matsuoka 2017]] ). However, more recent literature suggests that climate clubs complement rather than challenge the international regime established by the UNFCCC ( [[#van%20Asselt--2014|van Asselt and Zelli 2014]] ; [[#Falkner--2016a|Falkner 2016a]] ; [[#Draguljić--2019|Draguljić 2019]] ).

In this dynamic context, one question is whether to negotiate a single global agreement or to start with smaller agreements in the hope that they will eventually evolve into a larger agreement. It has been debated extensively in the context of free trade whether a multilateral (global) negotiating approach is preferable to a regional approach, seen as a building block towards global free trade. [[#Aghion--2007|Aghion et al. (2007)]] analysed this issue formally for trade, showing that a leader would always choose to move directly to a global agreement. In the case of climate change, it appears that even the mildest form of club discussed above (an efforts and costs sharing agreement, as in the case of the linkage of emissions trading systems) can yield global cooperation following a building blocks approach, and that the sequential path relying on building blocks may be the only way to reach global cooperation over time ( [[#Caparrós--2017|Caparrós and Péreau 2017]] ). While the existence of a nearly universal agreement such as the Paris Agreement may arguably have rendered this discussion less relevant, the Paris Agreement co-exists, and will likely continue to do so, with a multitude of sectoral and regional agreements, meaning that this discussion is still relevant for the evolution of these complementary regimes.

Results based on an agent-based model suggest that climate clubs result in major emissions reductions if there is a sufficiently high provision of the club good and if initial membership by several states with sufficient emissions weight materialises. Such configurations allow the club to grow over time to enable effective global action ( [[#Hovi--2017|Hovi et al. 2017]] ). The departure of a major emitter (specifically the United States) triggered a scientific discussion on the stability of the Paris Agreement. [[#Sprinz--2018|Sprinz et al. (2018)]] explore whether climate clubs are stable against a leader willing to change its status, for example, from leader to follower, or even completely leaving the climate club, finding in most cases such stability to exist. Related studies on the macroeconomic incentives for climate clubs by [[#Paroussos--2019|Paroussos et al. (2019)]] show that climate clubs are reasonably stable, both internally and externally (i.e., no member willing to leave and no new member willing to join), and climate clubs that include obligations in line with the 2°C goal combined with financial incentives can facilitate technology diffusion. The authors also show that preferential trade arrangements for low-carbon goods can reduce the macroeconomic effects of mitigation policies. [[#Aakre--2018|Aakre et al. (2018)]] show numerically that small groups of countries can limit black carbon in the Arctic, driven mainly for reasons of self-interest, yet reducing methane requires larger coalitions due to its larger geographical dispersal and requires stronger cooperation.

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