The consequence of running solo : How defecting from climate collaboration impacts the global temperature and damage to GDP

Abstract: It is widely known that we can expect great damage to our world and economy because of climate change. It is human activities, and their emissions that has led us to where we are. IEA (2022) have declared that coal is the single largest source of carbon emission and scientists have stated that we need to phase-out the use of coal by 2050 to reach the Paris Agreement goal. At COP26 India chose to rephrase the climate agreement from “phase out the use of coal” to “phase down the use of coal” even though this goes against the recommendations made by scientists. This paper models the damage to GDP from climate change using a DGE model with two regions. One region is represented by India and the other is represented by the rest of the world. To predict the economic damages from using coal the model includes a climate variable. The thesis investigates four different scenarios: both regions collaborate; India defects while the rest of the world collaborates; the rest of the world defects while India collaborates; both regions defect. The results show that in 100 years the temperature will have risen to 3.27 degrees if the two regions choose to defect and the damage to GDP will be 1.55 percent. This is 0.21 degrees and 0.14 percentage points higher than when both regions collaborate. By using a game theory set-up, I find that it is always beneficial for India to defect. While for the rest of the world, it is better to collaborate in the long run to minimize their damages.