How to Negotiate and Update Climate Agreements

Any climate change agreement ought to be negotiated and updated later on, as we learn more about the costs and benefits of abatements. Anticipating such negotiations, countries may distort domestic decisions (regarding R&D and adaptation, for example) trying to increase their future bargaining power. This can make a situation with an agreement worse than no agreement at all — unless one specifies rules governing the negotiation process. This paper argues that harmonization and the use of formulas, the time span for the agreement, the default outcome if the negotiations should fail, the voting rule and a minimum participation requirement can all be efficiency enhancing rules. Each rule would be more credible and efficient if the climate agreement is linked to a trade agreement, since that would discourage members from opting out or free-riding if they should be adversely affected by the rules.