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Sharing the costs and benefits of climate change mitigation via Shapley value

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Abstract

This paper examines the free rider problem that exists in the joint effort to mitigate climate change. There is a need to develop a model that is stable and that provides evidence of an objective burden sharing rule so that the environmental agreement is more acceptable. This study approaches this problem via a cooperative game at the global level to make International Environmental Agreements (IEA) more stable. For this purpose, we apply the Shapley value transfer mechanism and find that under the commitment scenario, some regions attain the maximum benefits by joining the coalition. Shapley value transfer improves the coalition size and increases the global benefits at a certain level of abatement under perfect cooperation. Imperfect cooperation leads to lower levels of global benefits. Our findings offer new implications on how to improve the international cooperation for climate change. Commitments by major regions could activate the IEA (e.g., Paris agreement) efficiently. For the maximum global response to climate change, the national governments must reformulate and implement policies to meet their intended nationally determined contributions (INDCs). The results of this study also help the national governments to set their implementation priorities to implement the Paris Accord at global level.

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Notes

  1. Business as usual (BAU) is a starting point of the analysis which based on the set of assumptions. All these assumptions are defined above for the simulation purpose.

  2. The Shapley value in our paper is taken from Winter (2002) with some modifications.

  3. Because of space limitations, the interested reader is referred to Fankhauser (1995, 2013) and Tol (1996, 2005).

  4. Under the stable coalition commitments, the maximum net benefits and maximum gain under the Shapley value scenario by cooperation are 3040 = (5344 − (3 × (546 + 61 + 161) and (3040/5344) × 100 = 56.88%. This is calculated for the coalition structure of EC, ET, and CN. Similarly, we calculated the maximum net benefit and maximum gain from cooperation for each coalition structure.

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Authors and Affiliations

  1. School of Economics, Qingdao University, Qingdao, People’s Republic of China

    Muhammad Luqman

  2. Department of Business Administration, Middle East Technical University, Cankaya, 06800, Ankara, Turkey

    Ugur Soytas

  3. The Center for Economic Research, Shandong University, Jinan, People’s Republic of China

    Sui Peng & Shaoan Huang

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  1. Muhammad Luqman
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  2. Ugur Soytas
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  3. Sui Peng
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  4. Shaoan Huang
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Correspondence to Muhammad Luqman or Ugur Soytas.

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Luqman, M., Soytas, U., Peng, S. et al. Sharing the costs and benefits of climate change mitigation via Shapley value. Environ Sci Pollut Res 26, 33157–33168 (2019). https://doi.org/10.1007/s11356-019-06409-y

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