Playing the Climate Game: A Game Theoretic Analysis of Global Warming
Photo by Li-An Lim on Unsplash
Every game of chess is governed by a framework of rules, and these rules are simple:
There is a finite number of possible moves
Each player acts in their own self-interest, and
Players want to achieve the best possible outcome given preceding actions
Sounds simple enough, right? Now what if I told you that, in this case, the players are countries and the chess board is our world. Strangely enough, that wouldn't be too far off from the truth.
Meet game theory - a subfield within economics that seeks to map out the behaviour of rational agents and the interactions between their decisions in competitive situations. And climate negotiations, being heavily dependent on and driven by each country’s individual strategic targets, have naturally drawn the attention of game theorists across the globe.
The dilemma is fairly straightforward- people, firms and governments derive great utility from the burning of fossil fuels in the form of GDP growth and job creation. However, the Earth’s biosphere has a limited carbon clearing capacity. While the source country of the emissions directly benefits from its activity, the costs of the emissions are spread across the globe. Hence, driven by self-interest, each country has an inherent incentive to increase its CO2 emissions.
Through the lens of game theory, climate change can be modelled as an iterated game played over a public good that no one owns and no one can restrict access to. The non-rivalrous and non-excludable nature of the biosphere allows this game to be modelled as a tragedy of the commons, which is a specific case of the prisoner’s dilemma. In this model, each country’s rational decision is to emit as much carbon as possible in the pursuit of economic benefits.
Pre-industrialisation, the nature of this game didn’t pose much trouble, as each country’s capacity for emissions was only a fraction of what it is today. However, the technological advancements beckoned by the Industrialisation Revolution expanded the horizons of possibility beyond imagination. Let’s look at things from the perspective of the United States alone. Before the 1760s, the US’ emissions were negligible, but the development of machinery and factories propelled CO2 emissions to 6 billion tonnes per year by 1950 - this figure has grown exponentially since then, almost quadrupling just 40 years later. Currently, the US remains the second largest emitter of CO2, with China securing the first place at 11.47 billion tons of CO2 in 2021.
The prisoner’s dilemma framework explains why climate treaties have had a notoriously subpar track record. This model sees a complete breakdown of cooperation, as every country instead prioritises its personal interests. In the past, this has often been the case as agents have forgone collective action in their objective of economic growth. However, the interaction between the countries’ decisions produces a less-than-optimal result. If each country maximises its CO2 emissions, the biosphere is unable to adjust and tips over to a new steady-state equilibrium - one that is 2 degrees Celsius higher than pre-industrial levels.
Does this mean that climate negotiations are doomed to fail? Fortunately, this is far from the case. Due to their roots in real-world mechanisms, models in economics are capable of transforming social contexts and influencing the art of decision-making.
One of the main caveats of climate treaties is the lack of a central authority figure. Authority figures have the ability to enforce climate treaties by punishing non-compliance and in the absence of such an agent, countries are hesitant to cooperate or follow-through with their agreements. In order to overcome this obstacle, game theorists have developed a Grim Trigger strategy, in which any deviance from cooperation results in the deviator being punished indefinitely. However, the harsh and inflexible nature of this strategy tends to make renegotiation more attractive.
Hence, in order to ensure compliance, policymakers need to create an agreement in which it is in each nation’s best interest to conform to the terms of the agreement. This can be done through a strategy called the Forgiving Trigger, which has been presented as a milder alternative to Grim Trigger. Instead of indefinite punishment, the Forgiving Trigger strategy requires the deviator to pay a penalty before cooperation is resumed- this penalty can be in the form of trade restrictions or fines. This strategy incentivises countries to accept the penalty, as the return to cooperation has a higher payoff for both deviating and non-deviating countries.
Another way to break free from the self-fulfilling mold of the tragedy model is to dispel the belief that increasing emissions is in the best interest of states. Studies have shown that we have reached a point where the costs of burning fossil fuels are greater than the benefits derived from its economic output. Green argues that the measures needed to decarbonise the global economy are “nationally net-beneficial, and therefore nationally self-interested,” thus concluding that the prisoner’s dilemma framework has been falsely attributed. In this case, it is possible for rational agents acting in self-interest to reach a mutually-beneficial outcome, even without the presence of an enforcing authority figure.
Implementing these alternative models in the real-world is undoubtedly not going to be an easy task. However, as ten millennia old permafrost begins to collapse and mass extinctions become the new reality, these insights from game theory may be the silver lining that we all need.