Delegating climate policy to a supranational authority: a theoretical assessment

Author(s)
Paul Pichler, Gerhard Sorger
Abstract

This paper studies the delegation of climate policy to a supranational environmental authority. We develop a simple model of a world consisting of a large number of countries, which derive utility from energy consumption. Countries suffer from global warming and local air pollution, both caused by the combustion of fossil fuels, and decide individually on investments in clean technologies for energy production. A supranational environmental authority decides for each country on the maximally permitted amount of greenhouse gas emissions. We demonstrate that the authority faces a dynamic inconsistency problem that leads to welfare losses, but these losses can be kept small if the authority is endowed with an optimally designed mandate. The optimal mandate penalizes the cost of local air pollution very heavily relative to the cost of global warming. However, delegation of climate policy faces a further difficulty, as countries have a recurrent incentive to change the authority's mandate over time.

Organisation(s)
Department of Economics
External organisation(s)
Österreichische Nationalbank
Journal
European Economic Review
Volume
101
Pages
418-440
No. of pages
23
ISSN
0014-2921
DOI
https://doi.org/10.1016/j.euroecorev.2017.10.014
Publication date
01-2018
Peer reviewed
Yes
Austrian Fields of Science 2012
502042 Environmental economics
Keywords
ASJC Scopus subject areas
Economics and Econometrics, Finance
Sustainable Development Goals
SDG 13 - Climate Action
Portal url
https://ucris.univie.ac.at/portal/en/publications/delegating-climate-policy-to-a-supranational-authority-a-theoretical-assessment(9aa99728-5267-4e38-8806-cbecfb13162a).html