A promising approach in international climate policy, which is also discussed in the context of the EU Green Deal, is the formation of a climate club (Tagliapietra and Wolff, 2021). The idea was brought forward by Nobel laureate William Nordhaus in a widely acclaimed study: A coalition of countries with ambitious climate policies -- the climate club -- could use trade sanctions to incentivize other countries to join the climate club and thus adopt more ambitious climate policies (Nordhaus, 2015).

Hagen and Schneider (2021) show that such sanctions can be detrimental to international cooperation on climate protection if trading partners take retaliatory countermeasures. In this case, the desired positive effects on cooperation only arise if the climate club is already sufficiently large before the trade sanctions are introduced. Moreover, even if the climate club expands as a result of trade sanctions, the additional distortions of international trade can lead to substantial welfare losses. Both Europe and the United States are indispensable members of a climate club for the successful implementation of trade sanctions.

Achim Hagen (HU Berlin)
Ben Schneider (University of Oldenburg)

The study, titled "Trade sanctions and the stability of climate coalitions", was published in the Journal of Environmental Economics and Management (open access): https://doi.org/10.1016/j.jeem.2021.102504.

This text is jointly published by BSE Insights and BCCP.

References

Hagen, A., & Schneider, J. (2021). Trade sanctions and the stability of climate coalitions. Journal of Environmental Economics and Management, 102504. 

Nordhaus, W. (2015). Climate Clubs: Overcoming Free-riding in International Climate Policy. The American Economic Review, 105(4). 

Tagliapietra, S., & Wolff, G. B. (2021). Form a climate club: United States, European Union and China. Nature, 591(7851), 526–528.