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In this chapter we propose a dynamic game-theoretic modeling framework for the international climate change negotiations that should take place at the end of the Kyoto Protocol agreement if the necessity to drastically curb carbon emissions is confirmed. The model is composed of a set of optimal economic growth models corresponding to the different groups of nations that will be parties in the negotiations. Emissions of greenhouse gases (GHGs) are represented as by-products of the economic production process. Two types of capital (clean vs. dirty) can be used to produce the economic good with different emissions effects. The negotiations should determine a set of allowances that define caps on GHG emissions such that a long-term constraint on total emissions is satisfied. At each instant of time, given the emissions caps, an international emissions trading system is organized. In order to be self-enforcing, the emissions caps and the economic growth paths have to satisfy a noncooperative equilibrium condition. We describe this two-level game structure mathematically and give the necessary optimality conditions that must be satisfied by the equilibrium solution under the coupled global emission constraint. [ABSTRACT FROM AUTHOR]

In this two-part paper we evaluate the effect of "endogenizing" technological learning and strategic behavior of agents in economic models used to assess climate change policies. In the first part we show the potential impact of R&D policies or demonstration and deployment (D&D) programs in the context of stringent stabilization scenarios. In the second part we show how game-theoretic methods can be implemented in climate change economic models to take into account three types of strategic interactions: (i) the market power of the countries benefiting from very low abatement costs on international markets for CO2 emissions, (ii) the strategic behavior of governments in the domestic allocation of CO2 emissions quotas, and (iii) the non-cooperative behavior of countries and regions in the burden sharing of CO2 concentration stabilization. The two topics of endogenous learning and game-theoretic approach to economic modeling are two manifestations of the need to take into account the strategic behavior of agents in the evaluation of climate change policies. In the first case an R&D policy or a demonstration and deployment (D&D) program are put in place in order to attain a cost reduction through the learning effect; in the second case the agents (countries) reply optimally to the actions decided by the other agents by exploiting their strategic advantages. Simulations based on integrated assessment models illustrate the approaches. These studies have been conducted under the Swiss NCCR-Climate program. [ABSTRACT FROM AUTHOR]