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The climate change bargaining game

Would you pay $1 billion to a populist to help save the environment?

Smoke rises from an illegally lit fire in the Amazon rainforest reserve, south of Novo Progresso in Para state, Brazil, on Aug. 15. (Carl De Souza/AFP/Getty Images)

On the eve of President Biden’s virtual environment summit, Brazil has approached the United States with an offer it can’t refuse.

The Wall Street Journal’s Paulo Trevisani and Timothy Puko reported on Wednesday that “Brazil’s government, widely criticized by environmental groups as a negligent steward of the Amazon rainforest, has made an audacious offer to the Biden administration: Provide $1 billion and President Jair Bolsonaro’s administration will reduce deforestation by 40%.” The Bolsonaro government suggests that this is the best way to incentivize residents of the Amazon to pursue economic activities that do not require, you know, burning the Amazon.

There are a couple ways of looking at this from the U.S. perspective. One is that this is the Coase Theorem in action. Brazil has property rights over the rainforest, and it is in U.S. climate change interests to pay the billion dollars to reduce deforestation by that much. Given the historical responsibility of the United States in contributing to global warming, this seems like a lot of bang for the buck. As NBC News’s Benjy Sarlin tweeted, this “seems like a bargain,” given the cost of domestic climate change initiatives.

Another way is that in agreeing to pay, Biden could be running into a moral hazard problem. The Bolsonaro government allowed Amazon deforestation to increase by 9.5 percent last year, a 12-year high. Paying the populist would just incentivize even more perverse bargaining behavior.

This problem is not limited to Brazil, either. As the Journal reports, “The request is likely just among the first of many similar to follow as developing nations start to negotiate with industrialized countries about who pays for costly programs to address climate change.” India, among other developing countries, wants priority access to the $100 billion a year in public and private financing the Paris climate deal promised to the developing world.

So, how to think about it? The fact that this pledge was made in Paris suggests that the developed world was fully aware that this kind of bargaining would have to take place to ensure developing countries’ buy-in on mitigating climate change. Indeed, Biden signed an executive order in his first month pledging to use aid to “assist developing countries in implementing ambitious emissions reduction measures, protecting critical ecosystems, building resilience against the impacts of climate change, and promoting the flow of capital toward climate-aligned investments and away from high-carbon investments.”

Getting large developing countries like India and Brazil to adopt major policy shifts would be a significant step. That said, the optics of such an exchange are not ideal for U.S. domestic politics. It raises the question of whether this bargaining dynamic will remain politically sustainable.

I suspect the answer is no, but not just because of U.S. domestic politics. The more that climate change is baked into future expectations, the more that the bargaining dynamic begins to favor the United States and other OECD economies. If mitigating climate change comes as close as possible to the definition of a pure global public good, adaptation to climate change is both a rival and excludable good.

Bloomberg’s Eric Roston, Paul Murray and Rachael Dottle reported last year on a new National Bureau of Economic Research study that suggests the ways in which developing countries will feel the effects of climate change more acutely: “Your future risk of dying from heat will be determined more than anything else by where you live and the local consequences of today’s economic inequality. . . . People in poor regions who benefit less from investment in air conditioning, protective infrastructure, and elder care will die from extreme heat at much higher rates, even compared to wealthier peers who experience similar hot temperatures.”

Put simply, crudely, and in terms that will not be uttered in diplomatic circles: Over time, the developing countries’ incentive to emit greenhouse gases will start to erode considerably because their populations will bear the brunt of the costs. As that happens, the bargaining game will shift in favor of the richer countries.

Is this an awkward and potentially offensive point to raise in international relations? Perhaps. But so is asking to be paid not to pollute.