Hot air in Kyoto, cold air in The Hague—the failure of global climate negotiations

Why did the climate negotiations in The Hague fail? Our contribution is to argue that the conflict between the European Union (EU) and the United States (US) stems mainly from disagreement on the cost issue. We argue that the three main concerns promoted by the EU in The Hague. First, a 50% national emission ceiling (the supplementarity principle), second the use of carbon sinks, and third an international market control system. These issues can be solved by removing all restrictions on free greenhouse gas (GHG) trade and by establishing the World Trade Organization as an international authority. The US will face considerably higher costs than foreseen at the negotiations in Kyoto and will have strong incentives to free ride. Our main hypothesis is that the EU proposal on supplementarity made the US turn to free riding. Thus, to make the US stay in an international GHG emission-trading scheme, the EU must reconsider and acknowledge US claims for cheaper reduction options and the right to trade ‘hot air’. This point is important. If the US does not participate, the increase in emissions will be much higher than the emission reduction following the EU supplementarity proposal.