Climate change

Game theory answer to climate blindness

PUBLISHED : Wednesday, 03 October, 2007, 12:00am
UPDATED : Wednesday, 03 October, 2007, 12:00am

Tom Holland

If the environmental policies of the United States and China seem inexplicable, a little game theory might shed light on the positions of the world's two biggest polluters.

US climate policy seems the epitome of double think. The administration has finally acknowledged the reality of global warming and conceded that human discharges of greenhouse gases are indeed to blame. But it still refuses to accept the need for a mandatory limit on emissions, arguing that such restrictions would damage the US economy.

Beijing, too, rejects the idea of capping its greenhouse gas emissions. Beijing says China is a poor country where emissions are relatively low on a per capita basis. It argues that most of the rise in greenhouse gas concentrations in the atmosphere is the result of past emissions from developed countries, and that to accept a ceiling on discharges would unfairly hinder the country's economic development.

Both of these stances are deeply flawed. Each rejects emission caps because of their supposed economic cost, but both ignore the far greater likely economic burden of failing to limit greenhouse gas emissions. According to last year's Stern report, the most authoritative study yet of the economics of climate change, doing nothing to check emissions will cost us between 5 and 20 per cent of global gross domestic product by the second half of the century. In contrast, stabilising emissions over the next 10 to 20 years will cost at most 3.5 per cent of world GDP.

Given that the projected benefits of emission caps so heavily outweigh the likely costs, it is hard to see why governments are still resisting the idea.

A variation of the famous 'prisoner's dilemma' may help to explain. Two suspects are detained by the police and held separately. Each has a choice. He can stand by his mate, say nothing and go to prison, or he can betray his friend and maybe earn a reprieve.

The trouble is that the outcome for one prisoner depends on what the other chooses. If both keep silent, each will serve a one-year sentence. If one talks and the other stays quiet, the squealer will go free while his faithful friend will get ten years. If each betrays the other, they both get locked up for seven years.

The best overall outcome is for the prisoners to trust each other, but that entails a risk for each that the other will inform on him. The upshot is that each betrays his friend; the worst result overall, but an intermediate outcome for each prisoner.

The US and China are in a similar position. Instead of focusing on achieving the best overall result for the global environment, each is concentrating on its own narrow relative advantage. The US is reluctant to agree to emission caps lest it surrender any economic advantage to countries like China, which reject limits of their own. The mainland, meanwhile, will not accept environmental standards that might threaten to hinder the growth of its economic power relative to the rich world.

With each country determined not to jeopardise its perceived self-interests, trust goes out of the window and mutual betrayal becomes inevitable. That is the worst possible outcome, both for the world's environment and its economy.