A good opening: the key to make the most of unilateral action

We examine the reaction of non-signatory countries to partial cooperation on climate change. Although free- riding incentives lead countries that do not participate in the environmental agreement to increase their emissions, under some conditions technology advancements within the coalition spill over to non-signatories and induce them to reduce, rather than increase, their emissions. We investigate these conditions analytically, using a Stackelberg game, and numerically, using a calibrated integrated assessment model. Results indicate that if a partial coalition, composed of OECD countries, cooperates to reduce their 2050 emissions between 30 and 35% below 2005 levels, the technology effect would prevail. This suggests that cooperating countries can strategically choose their unilateral climate objective so as to induce a virtuous behaviour in non-signatories countries. Interestingly, in the short-run these reductions are comparable with the Copenhagen pledges for Annex I countries. Conversely, had the OECD coalition embraced a more demanding target (e.g. 2050 emissions 50% below their 2005 levels), then the leakage effect would prevail and non-signatories would erode the coalition’s environmental effectiveness. To mitigate the risk of carbon leakage associated with more ambitious targets, credible future commitments for developing countries could be set, as they would reduce lock-in in carbon intense technologies.