Environmental problems have long been played according to game theory: a world of states that act as discrete sovereign units inhabiting an environment that is globally interconnected. In the climate, the beneficial effects of emissions (i.e. energy) are local but their negative effects (i.e. climate change) are externalised across the world.
As I write this, countries here in Poznan are engaging in classic game theory over discussions on cutting GHG emissions. Switzerland, for example, has pledged a 20% cut by 2020 in emissions but has said it will go to 30% if other states go further. It is playing its game based on the actions of other players. The EU–representing a coalition of game players–has done the same; this week is launched its 20,20,20 targets by 2020, but said it would go as far as a 40% cut by 2020 if other countries made ‘significant contributions’.
The key issue here is that the benefits for parties increases as more people pledge more. The more parties cut their emissions, the less the climate changes and the less it costs parties in mitigation and adaptation. This Nash equilibrium is a best outcome for all parties but dependent on individual members. However, players in the climate game are unwilling to make the first step, as they would be risking going it alone, and so reducing their emissions without there being a noticeable impact on the climate. Players wait for others to move.
The only way to overcome this stalemate is for one player to forge ahead or for all countries to simply sit down together and thrash out a joint deal. I am currently sitting through the latter of these options.
The outcome of the Poznan round of the game is extremely significant for the wider climate change game. Australia has put itself in a very advantageous position in the game by making its announcements on 2020 targets on Monday, after other parties have made their pledge. This allows it to make the most efficient investment in mitigation by knowing what other parties are doing.
However, if the Australians take a look in an economics textbook (increasingly at the top of the paper pile in climate change departments) they will see that no action in Poznan followed by a low target from them on Monday will only give a good outcome in this round of the game. The longer-term negatives of not acting will be much more costly.
Waiting for other players in a game does not create a winner, but simply delays the process of investment and increases the risk of ‘game over’. We shall see in the next 36 hours whether the players in this round act together to reach the equilibrium state required.