Abstract
This paper introduces a novel policy structure to mitigate global carbon emissions without requiring broad multilateral cooperation. Extending Nordhaus's (2015) climate club, countries in the ``second tier'' must price carbon at a fixed fraction of the average carbon price within the first tier, or face tariffs. Tier 1 countries abate more since doing so induces matching abatement in the second tier. The stable first-tier coalition consists of the US and EU, which optimally sets carbon prices at 60% of the global Social Cost of Carbon. The stable agreement achieves global abatement four and a half times higher than the uncoordinated Nash equilibrium and one-third of the globally efficient level.
Local Organizer: Niko Jaakkola