The Endowment Effect and the International Climate Change Negotiations

[Dan Bodansky is the Foundation Professor of Law and Faculty Co-Director of the Center for Law and Global Affairs at the Sandra Day O’Connor College of Law at Arizona State University. He is in Paris for the climate change negotiations. This is the fifth in a series of updates both from the U.S. and from Paris. Professor Bodansky has consulted for the government of Switzerland and the Center for Climate and Energy Solutions (C2ES) in relation to the Paris Summit. However, he is writing in his personal capacity and the views expressed do not necessarily represent those of the Swiss government or C2ES.]

According to the endowment effect, people care more about losses than gains. If the no-Paris-agreement status quo represents country’s current endowment, then the endowment effect suggests that countries will place a higher priority on removing provisions in the Paris agreement that represent losses to them, than on including provisions that represent wins. That is why, in reaching an agreement, countries tend to resolve differences by removing provisions rather than by adding them. Hence the incredible shrinking climate agreement that I described in my earlier post.

Yesterday afternoon, the French put out a new version of the text (.pdf). Even though it made relatively modest changes, and left all of the crunch issues unresolved, and even though all countries accepted it as a basis of negotiations, they raised many objections in a three-plus hour meeting of the Paris Committee last night. Indeed virtually every option that the French text had tried to remove, some country insisted on putting back in. Following the Paris Committee, which ended at about 11:30 PM, the French presidency convened a smaller, closed meeting (known as an Indaba, a term that originated at the 2011 Durban COP), which reportedly ran until 7:30 AM. Apparently, the Indaba made little progress in bridging differences, so the French are now conducting bilateral consultations with a wide variety of countries, to try to reach agreement on “landing zones” for the various issues in the text.

Interestingly, the issue that was probably raised most frequently last night in the public meeting of the Paris Committee was the need to strengthen the long-term goal from the current goal of limiting temperature increase to no more than 2° C, to a goal of no more than 1.5° C. Since most analysts agree that there is no prospect of meeting the below-2° target, it is unclear what benefit would be provided by adopting an even more unrealistic temperature goal. Supporters of the 1.5° goal remind me of the courtiers to King Canute, who thought he could command the tide not to rise – they seem to believe that saying 1.5° will make it so. This reflects a touching faith in the power of words, but, frankly, I think the efforts to include a 1.5° degree goal might better be spent on including provisions in the agreement that are most likely to actually reduce emissions, such as a strong transparency system and a ratchet mechanism to encourage progressively more ambitious action over time.

The negotiations are now going 24/7. Although they are scheduled to end on Friday, most assume that they will continue into Saturday and possibly Sunday. A good indicator is that most delegations with whom I’ve spoken have booked return tickets for Monday!

Correction:  My original post incorrectly suggested that King Cnut actually believed he could command the tide to stop.  But, apparently, the correct rendition of the story is that King Cnut knew he was powerless to stop the tide from rising, and ordered it to do so either to show the supreme power of God over his own secular power, or to rebuke his fawning courtiers (depending on which version of the tale one reads).