Meeting a national emission reduction target in an experimental setting

Abstract

Climate change poses the ultimate dichotomy between social welfare and individual incentives because, despite the global benefits synonymous with mitigation, individuals lack incentive to reduce their own emissions. Using a public good experiment with a climate change framing, this paper examines the scope for cooperation in meeting a national mitigation goal; in particular, the experimental design examines how different sectors with differing marginal abatement costs distribute the responsibility of reducing emissions between themselves. The experiment consists of four treatments including the counterfactual baseline scenario which examines voluntary cooperation, a communication treatment examining the role of stakeholder participation in facilitating cooperation and, finally, two treatments simulating a carbon tax, where the carbon tax reflects an electricity levy. The results suggest that voluntary cooperation will not be sufficient to meet the mitigation target. While communication significantly increases average contribution levels, it also polarises individual player strategies between full cooperation and free riding. With the introduction of a tax, cooperation becomes near-universal. However, a carbon tax crowds out contributions in excess of a specified mitigation target. This emphasises the important of choosing the correct tax level.