1. Environment & Statecraft The Strategy of Environmental Treaty- Making by Scott Barrett Johns Hopkins University School of Advanced International Studies

2. Session 1: The Participation Game

3. The rise of the treaty

4. Treaty participation

5. Acid rain case study Helsinki Protocol (1985) parties must reduce their sulfur emissions 30% from the 1980 level by 1993. Success?

6. Source: UNECE web page, June 2000.

7. The Helsinki Protocol appears to be a success, but... Participation is incomplete. “Over-compliance” by most parties. Several non-parties also reduced emissions by more than 30%.

8. …and the treaty lacks mechanisms essential to success Acid rain is an asymmetric game, and yet the treaty does not offer side payments. Helsinki does little to encourage participation and nothing to enforce compliance. Conclusion: Helsinki made little difference

9. Oslo Protocol (1994) The Oslo Protocol is designed differently. –Different emission limits for every country. –Limits set to meet “critical loads.” –Allows “JI” for cost-effectiveness. –Acknowledges need to enforce compliance. But –Oslo does not sustain full participation. –And most parties “over-comply.”

11. Oslo Protocol Also Country most in danger of not complying (Portugal) has not ratified it. “Critical loads” are not achieved. JI mechanisms not implemented. No side payments. Treaty does not specify consequences of non- compliance—except to say that it may be necessary to “assist” countries having problems complying.

12. A Contrast: Title IV Cap and trade; participation mandatory. Relies on precise, continuous monitoring. Imposes a fine, set by Congress, of $2,682 per ton (in 2000). Actual marginal costs are about $187. Requires that polluters make up for the shortfall in the next year. Makes non-compliance a felony. Result: 2000 compliance rate, 99.99946%!

13. 1911 Fur Seal Treaty

15. Pribilofs discovered in 1786; up to 5 million seals. Sole owner management reduced the herd to 2m. The early years

16. Pelagic sealing decimated the herd, and nearly led to war. By 1909 there were less than 150,000 seals left. Later…

17. The Treaty of 1911 brought a reversal of fortune: by 1917 the herd had tripled in size; by 1940 there were once again 2 million seals. Later still… How did it do this?

18. By changing the rules of the game 1.Created an aggregate surplus by banning pelagic sealing. 2.Used side payments to redistribute the surplus such that every party gained. 3.Deterred non-participation by means of a “linchpin” punishment. 4.Deterred non-compliance by making pelagic sealing a criminal offence. 5. Deterred entry by banning trade in non- authenticated skins.

19. Montreal Protocol Negotiated in 1987; adjusted and amended several times since then. Bans production and consumption of the ODSs. Achieves nearly universal participation. By around 2050, the ozone layer is expected to be restored. How did the MP succeed?

20. The underlying PD PP AA 0 N-1 Number of others that play Abate Card game: You must forfeit $7.50 if you hand in your red card. You get $1 for every red card handed in by anyone. Suppose N = 100. 0 - $6.5 $92.5 $99

21. The participation game 0N-1 Number of others that play Signatory k*-1 nn ss Must choose to be a Signatory or a Non- signatory. Signatories must play Abate if at least k* = 8 countries accede; otherwise, signatories can behave as they like. $0 $0.5 $8 $92.5 $99 Note: Not drawn to scale.

22. Collective rationality Why k* = 8? Why not set k* = 100? k* = 8 is the only credible minimum participation level for this game. With the Fur Seal Treaty, we were lucky; k* = N.

23. An Analytical Approach: The Underlying PD For the N-player PD, payoffs are:  i = b(q i + Q -i ) – cq i where q i = {0, 1}; countries either play Abate (q i = 1) or Pollute (q i = 0). Assume c > b (play Pollute is a dominant strategy) and bN > c (full cooperation requires that every country play Abate). In the earlier card game we had  i = (q i + Q -i ) – 7.5q i so that b = 1 and c = 7.5.

24. Transformed PD In the PD, countries can play Abate or Pollute. But in the real world, countries can do more than this; they can negotiate a treaty. –Stage 1: Each player chooses to be a signatory or a non-signatory. –Stage 2: Signatories choose to play Abate or Pollute with the objective of maximizing their collective payoff. –Stage 3: Non-signatories choose to play Abate or Pollute.

25. Backwards Induction When deciding whether to sign, a country will know what the treaty requires (given the participation of others) and what it will do if it does not sign.

26. Stage 3 Since c > b, non-signatories always do better by playing Pollute.

27. Stage 2 Let k be the number of signatories. Collectively, signatories will play Abate if kb  c; they will play Pollute if kb < c. For the experimental game, c = 7.5 and b = 1. Hence, signatories play Abate if k  8 and Pollute otherwise.

28. Stage 1 If six or fewer others play Signatory, it doesn’t matter if you play Signatory—so you might as well play Signatory (  s =  n = 0). If seven others play Signatory, your accession triggers entry into force and you get a payoff of  s = 0.5 if you play Signatory and  n = 0 if you play Non-signatory. If eight or more others play Signatory, you do better by playing Non-signatory.

29. Equilibrium Treaty requires that parties play Abate. Treaty enters into force if ratified by k* countries (where k* is the smallest integer greater than c/b). In our example, k* = 8. Precisely k* countries (8 in our example) ratify the treaty. All non-signatories play Pollute.

30. Implications Gains to cooperation are (bN – c)N. Gains increase in N and b, decrease in c. k*, by contrast, decreases in b and increases in c. So k* will be large when the gains to cooperation are small. When the gains are large (and payoffs are linear), (credible) punishments are small and so only a small number of parties can be supported. Cooperation harder the larger is N.

31. Cost-benefit analysis of the Montreal Protocol Source: EPA (1988).

32. Summary so far A treaty can transform the underlying game. The transformation is constrained by the credibility of the threat to punish non- participation. When N is “large,” a treaty is unable to transform a PD by very much.