A Game of International Climate Policy Solved by a Homogeneous Oracle-Based Method for Variational Inequalities

This paper presents a game-theoretic model for the international negotiations that should take place to renew or extend the Kyoto protocol beyond 2012. These negotiations should lead to a self-enforcing agreement on a burden sharing scheme to realize the necessary global emissions abatement that would preserve the world against irreversible ecological impacts. The model assumes a noncooperative behavior of the parties except for the fact that they will be collectively committed to reach a target on cumulative emissions by the year 2050. The concept of normalized equilibrium, introduced by J.B. Rosen for concave games with coupled constraints, is used to characterize a family of dynamic equilibrium solutions in an m-player game where the agents are (groups of) countries and the payoffs are the welfare gains obtained from a Computable General Equilibrium (CGE) model. The model is solved using an homogeneous version of the oracle-based optimization engine (OBOE) permitting an implicit definition of the payoffs to the different players, obtained through simulations performed with the global CGE model GEMINI-E3.