Cooperation or Coordination? - The Case for a New Climate Strategy

6th of March 2025

By George Barber (Net Zero Analyst, UCL Green Economy Society)

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When a  country reduces its greenhouse gas (GHG) emissions, the benefits (to people and the environment) are shared globally, whereas the costs (to businesses and the fiscal budget) are borne locally.

This non-excludability of benefits creates what economists call strategic substitutes: if one country reduces its emissions, the incentive for other countries to reduce their emissions declines.

As such, global cooperation on climate change mirrors a classic public goods game, and free-riding becomes the rule. 

This poses a significant problem for international environmental agreements (IEAs). To limit free-riding and provide the optimal quality of a public good, it is generally necessary to have a central authority with the power to enforce contributions. On the international stage, no such authority exists, and so countries continue to over-emit even though all would benefit from lower levels of pollution.

IEAs have struggled to overcome this basic misalignment of incentives.

The Kyoto Protocol, for example, suffered from weak compliance, as countries either failed to meet their targets or withdrew altogether when domestic costs became politically untenable.

Part of the issue is that such agreements have operated under a paradigm of cooperation, requiring countries to band together and incur personal costs for the collective good. Cooperative agreements tend to falter when governments act with self-interest, particularly because they are rarely codified in national law.

An alternative negotiation paradigm prioritises coordination. IEAs which focus on coordination aim to align strategies so that a country’s incentive to reduce its emissions increases as other countries reduce their emissions.

Economists call this strategic complementarity, and it is crucial for self-sustaining action against climate change.

From Cooperation to Coordination

While cooperative treaties target strict legal compliance, this is rarely achieved and even less frequently sustained. Coordination agreements recognise this and aim instead to align international incentives and normalise sustainable practices by taking advantage of network externalities.

A network externality exists when the value or productivity of a good, service, or industry increases as more participants engage with it. In the context of IEAs, examples include:

• Trade Provisions: If environmental standards are tied to market access then firms or countries using environmentally unfriendly production processes risk losing access to important markets. 

• Social Normalisation: As more countries adopt low-carbon technologies, behavioural barriers (scepticism, inertia) weaken and they become the default choice for businesses and consumers.

• Market Growth: Widespread enforcement of environmental standards and investment in low-carbon technologies contribute to learning effects, economies of scale, and global trade opportunities. This means that the sustainable sector becomes more profitable as more countries engage.

These dynamics can create tipping points, where contributors’ actions build on each other until a critical mass is reached and remaining countries follow suit. By decoupling compliance from legal enforcement, the adoption of sustainable practices exhibits long-term stability. 

Lessons from Successful Agreements

Several IEAs demonstrate how a coordination paradigm can be realised in practice.

The Montreal Protocol phased out ozone-depleting substances (ODS) such as chlorofluorocarbons (CFCs) by encouraging the use of substitutes and incorporating trade restrictions against non-compliant countries.

Thus, governments had to determine whether the costs of adopting these alternative technologies exceeded the benefits of free trade. After major economies complied, this was generally not the case. This situation is starkly different from IEAs such as the Kyoto Protocol and Paris Agreement, which relied on legally unenforceable emissions targets and hence failed to deal with the free-rider problem. 

The MARPOL Treaty aimed to reduce marine pollution by mandating specific technology standards, such as segregated ballast tanks for oil tankers.

Previous attempts to introduce performance standards had proven ineffective since the challenge of measuring water pollution resulted in exorbitantly high enforcement costs. Technology standards, however, were easily observable, making compliance cheap to verify. Initially, the standards had low adoption rates, but as major ports began linking them to port access, ship owners adhered to retain access to key markets.

The transition was corroborated by falling compliance costs as the technologies became normalised in ship manufacturing.

The EU’s Carbon Border Adjustment Mechanism (CBAM) is an ongoing example of a policy designed to reduce free-riding by addressing carbon leakage.

Leakage occurs when stringent environmental regulations in one country lead to the relocation of carbon-intensive production processes to countries with weaker standards.

The CBAM deals with this by imposing a carbon tax on imports from low-regulation countries, thus discouraging leakage, protecting low-carbon industries, and encouraging businesses to use cleaner production processes to remain competitive in the EU market. Moreover, it presents foreign governments with an ultimatum: implement a carbon tax domestically, or lose tax revenue to the EU.

What Next?

When international negotiations are approached from the standpoint of cooperation, progress on climate policy can appear locked in an insuperable stalemate.

In determining how to move forward, the cases of Montreal, MARPOL, and CBAM offer valuable lessons. These agreements use shared technology standards and trade provisions to align national incentives with international emissions targets, bypassing the free-rider problem.

Critically, all three involve powerful countries taking the lead: Montreal relied on trade restrictions backed by wealthy governments; MARPOL’s effectiveness hinged on major ports adopting its standards; and CBAM depends on the centrality of the EU market. 

This highlights the unique responsibility of economically powerful countries in tackling climate change. By mandating ambitious standards and investing in low-carbon technologies, even low-emitting powerful countries can foster market conditions conducive to sustainable growth.

This is particularly important in a world where many countries’ development paths remain uncertain. As broken pledges mount and the 1.5°C target seems increasingly out of reach, moving from cooperation to coordination could overcome inertia and provide a new model for international action. 

Credit to Scott Barrett, whose research on international environmental agreements inspired the analysis in this article.