Research

WP 1 gathers much needed empirical evidence on the effectiveness of monitoring and enforcement provisions in international environmental agreements (IEAs). To this end, the work package (i) links existing datasets in novel ways, (ii) gathers new survey data and (iii) uses these data sets for hypothesis testing on the issue of monitoring and enforcement.

WP1 puts special emphasis on the UNFCCC and its follow-up treaties, the Kyoto Protocol and the Paris Agreement. An in-depth review of the experience with MRV&E procedures under the Kyoto Protocol is conducted, including the rules and stipulations pertaining to emissions trading across Annex I countries. The implementation of the EU ETS required the design of MRV&E rules at the installation level. Using more than ten years of installation-level data from the EU ETS registry (EUTL), WP1 documents the amount of non-compliance incidents in the EU ETS and assesses the reporting accuracy based on newly linked data on air pollution release and transfer, developed at the University of Mannheim. Moreover, the determinants of compliance behaviour by individual firms are studied using heretofore unexplored survey data gathered by Martin et al. (2014).

With regard to the Paris Agreement, we plan to conduct a new survey among climate negotiators to shed light on the determinants of (expected) compliance, such as abatement costs, political credibility, or the involvement of non-state actors (Falkner 2016).

While other IEAs also face the problem of MRV&E, only a subset of them contain provisions for information exchange, and just a handful contain provisions on verification and enforcement (IEA Database Project, 2016). Using a purpose-built analytical model, WP1 derives testable hypotheses about the determinants of the presence of MRV&E clauses as an equilibrium outcome of an IEA.

WP 2 provides a comprehensive analysis and comparison of possible compliance and enforcement regimes, taking regime costs as well as actor asymmetry in terms of compliance benefits and costs into account. It consists of two parts.

Part 1 extends previous theoretical and experimental results on the behavioural and welfare implications of (costly) monitoring and enforcement schemes with centralized monitoring (e.g. McEvoy and Stranlund 2009; McEvoy et al. 2011). We add self-reporting and mutual monitoring as regime alternatives and compare and contrast outcomes and endogenous regime choice (Barrett and Dannenberg 2016a; Gürerk et al. 2006; Sutter et al. 2010). Extending this literature towards enforcement issues, we examine decentralisation and “self-punishment” (Cherry and McEvoy 2013) in costly monitoring-cum-enforcement regimes (Goeschl and Jürgens 2011). Experiments test the theoretical results for robustness and examine, with treatments of varying monitoring perfection, their effectiveness. This forms the basis of a comparison of existing regimes with possible alternatives.

Part 2 experimentally studies “softer” compliance mechanisms, mainly the increasingly used mechanism of “naming and shaming” (Cooley and Snyder 2015). The Paris Agreement, with its system of monitoring and stocktaking, but a deliberate exclusion of monetary sanctions for non-compliance, is a case in point. Naming and shaming has been shown to affect individual behaviour (e.g. Andreoni and Petrie 2004; De Hooge et al. 2008; Sznycer et al. 2016), but has not been studied for groups of individuals, e.g. countries. Part 2 is about to fill this current gap by investigating the behaviour of groups and their representatives under a naming and shaming mechanism.

Informed by WPs 1 and 2, WP 3 develops specific strategic recommendations for how highly committed individual countries that attach a high value to transparency and compliance should behave in the presence of countries that attach low values to these issues. Based on economic theory and experiments, WP 3 develops these recommendations in two distinct parts.

Part 1 analyses the behavioural and governance implications of heterogeneous transparency and compliance orientations. We extend the theory of endogenous honesty in regulation (Heyes 2001) to a setting in which the regulation is jointly negotiated between several countries. In an experimental section, we build on the emerging literature on asymmetries between players in social dilemmas (Glöckner et al. 2012; Khadjavi et al. 2014, Kube et al. 2015) and their impact on endogenous institutions to explore how heterogeneity in transparency and compliance orientation affects behaviour and social welfare. Under certain circumstances, countries may exploit the heterogeneity strategically (Khadjavi et al. 2014; Kube et al. 2015). The heterogeneities are implemented in the experiments through asymmetric restrictions in the action space of countries and variations in non-compliance or misreporting costs.

Part 2 considers ways for committed countries to put pressure on laggards by linking climate policy to other issues, such as trade. Nordhaus (2015) studies the consequences of trade arrangements among a coalition of leaders, aimed at inducing compliance by laggards. His numerical model shows that, under certain circumstances, the coalition can support universal membership. However, the analysis does not explain how such a coalition comes into being: whether spontaneously, as a group of a few like-minded committed countries, or deliberately organized in a top-down manner? We use experiments, based on simple game theoretical models, in order to explore these questions and complement Nordhaus’s numerical analysis.

Throughout the project, communication with the scientific community, relevant practitioners and the public are ensured through various channels. Results of the projects are presented in national and international workshops and conferences. They will be published in working papers series, such as the ZEW discussion paper series and submitted for publication in academic journals with peer review. An advisory board of scientists and practitioners has been established. Two workshops are organized to involve the board in the design of the research and discussion of the results. They will facilitate cooperation and outreach by deepening the interdisciplinary cooperation and give researchers from different disciplines and policy makers the possibility to share knowledge and results on the economics of MRV&E systems. This knowledge form the basis for suggestions to policy makers on how effective MRV&E systems can be implemented. The results are made available to the general public via (i) a newsletter, (ii) the press, where it is relevant, and (iii) a dedicated website for the project.