Reference no: EM13880386

Three blocs of nations are beginning negotiations aimed at reducing the emissions of greenhouse gases (GHGs). The blocs are the United States, the European Community, and a coalition of developing nations (DNs). Table A shows each bloc's current GHG emissions and the annual cost of reducing emissions to lower levels. The extent of global warming depends on the total GHG emissions of the three blocs. Each bloc would benefit from global emission reductions. Table B lists these benefits (measured

TABLE A

Population United States 300 million Europe 400 million DevelopingNations 2 billion NationalIncome $14 trillion $16 trillion $6 trillion   Emissions Cost Emissions Cost Emissions Cost Status Quo 1.2 $ 0 1.0 0 1.4 0   1.0 22 .8 18 1.2 12   .8 60 .6 42 1.0 30   .6 100 .4 80 .8 48

Costs of Reducing Emissions ($ Billions per Year)

TotalEmissions   UnitedStates     Europe     DNs   TotalEmissions   UnitedStates     Europe     DNs 3.6 0 0 0 2.6 28 40 46 3.4 6 8 10 2.4 32 45 54 3.2 12 16 20 2.2 36 50 60 3.0 18 24 30 2.0 40 55 66 2.8 24 32 38 1.8 44 60 72

TABLE B

 Benefits from Emission Reductions ($ Billions per Year)

vis-à-vis the status quo). In both tables, emissions are measured in billions of tons per year.

a. Is global warming a kind of prisoner's dilemma? Is it in the self- interest of any of the blocs to reduce emissions unilaterally? Explain briefly.

b. In preliminary talks, Europe has sought an agreement calling for "shared sacrifices''-that is, multilateral emission reductions. However, because of large budget deficits, neither the United States nor Europe is prepared to extend monetary aid to the developing world in compensation for its reductions. Does there exist a multilateral reduction plan that benefits all blocs?

c. Suppose, instead, that financial payments between blocs are feasible. Identify the efficient, global reduction plan. How much reduction should each bloc undertake, and what sort of compensation is necessary? (Hint: Any incremental emission reduction should be undertaken as long as the additional global benefit exceeds the extra cost.)