The China-US Climate Club and Potential Participation of the European Union: a Political-Economic Analysis

Climate change is the most typical "tragedy of commons" problem in its time-space scale. The greenhouse gas emitted at a certain location at a given time impact the whole planet and all future generations, but the negative externalities are not necessarily recognized by any party. This paper aims to investigate the political economy of a possible solution to this incentive problem. Professor William Nordhaus from Yale University recently proposed the idea of a climate club. The recent climate agreements between China and the US set a good example of how to incentivize countries to participate in global climate actions. If we were to view these agreements as treaties of the climate club, the China-US club would provide good incentives for big emitters in the next 30 years to participate. The European Union has been leading the climate change movements politically, economically and technologically. However, the participation of EU may not provide extra incentive for most of the future big emitters to join the club. On the other hand, international trade rules designated by the World Trade Organization and exiting bilateral trade agreements among the club members could potentially undermine the effectiveness of the club.