Regional initiatives and the cost of delaying binding climate change agreements

The Kyoto and Copenhagen Protocols on climate change mitigation postponed the specification of binding commitments to a future negotiation. This paper analyzes the strategic implications of delayed negotiations. While, as is well-understood, the incentive to free ride leads to excessive emissions prior to a binding agreement, the cost of delay is magnified by players' attempt to secure a favorable bargaining position in the future negotiation. A "brinkmanship", an "effort substitution", and a "raising rival's cost" effects all concur to generate high post-agreement emissions. The paper applies this general insight to the issuance of forward or bankable permits.