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Free keywords:
climate protection | global income shocks | global warming | international public goods | option value
Abstract:
Global economic shocks may affect countries' Nash equilibrium contributions to emissions reduction efforts. We study the effect
of income uncertainty on emissions reduction under different scenarios of national commitment targets. Our results show that
in the presence of uncertainty, the framing of emissions reduction targets has implications for total emissions reduction and
ex‐ante welfare. Under the plausible assumption of “prudence,” higher global uncertainty tends to reduce equilibrium climate
contributions if countries commit to a fixed cap for damage reductions before the income uncertainty is resolved. In contrast, if
countries are committed to allocating a proportion of income to climate protection, ex‐ante welfare may be higher than in the
baseline case of no commitments.
