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

Luqman, Muhammad
Soytaş, Uğur
Peng, Sui
Huang, Shaoan
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.