Tipping and reference points in climate change games
We live in a world characterized by discontinuities, where thresholds for abrupt and irreversible change are omnipresent, both in economic and ecological dynamics. Such thresholds, often referred to as tipping points, trigger nonlinear responses on the part of individuals or ecosystems.
Climate change is a prominent example of the pervasiveness of tipping points, since they appear both in the strategic decision to embark in costly mitigation (Heal and Kunreuther, 2012) and in the Earth’s climate system (Lenton et al., 2008).
In this chapter we will focus on the first class of tipping points, and refer to them as “behavioral tipping points”, to distinguish them from the ecological ones. As it will become apparent, though, the two are closely linked, since planetary boundaries define “the safe operating space for humanity with respect to the Earth system and are associated with the planet’s biophysical subsystems or processes” (Rockström et al., 2009). Hence, to discuss strategies one has to account for the underlying physical processes and how they are perceived (Tavoni and Levin, 2014).
Whether a country or a subnational actor (a city, an NGO or a firm) decides to invest in a clean technology, or more broadly in actions aimed at reducing greenhouse gas emissions, depends on its expectations with regards to the actions of others. This is particularly salient in the context of a public good such as climate change mitigation, where the worst-case scenario is for an actor to take costly action while the others refuse to do so, the so-called “sucker’s payoff”. Arguably, this has been the case for the European Union in climate negotiations up to COP 20 in Lima, with unilateral commitments by the EU routinely unmatched by other large economies. COP 21 in Paris was perhaps the first Conference of the Parties to mark a greater willingness to show leadership by other large powers, such as the United States and China. A possible interpretation, in keeping with the above arguments, is that enough action at various scales had accumulated in the years leading to the Paris summit that even less committed countries showed an increased willingness to act.
These emerging trends are potentially game-changing, provided that enough actors lead the way by taking action early on. Once a tipping point for sufficient investments in low carbon technologies has been reached, and constituencies with stakes in the nascent markets have formed, standard economic forces will sustain the transition to a carbon-neutral economy.
We will review some of the recent literature that provides clues about when such reinforcing dynamics take place. In doing so, we will come across related concepts, such as diffusion and feedback. Importantly, given the wide scientific uncertainties surrounding the location of the thresholds, we will discuss the role of expectations and argue that reference points are crucial for supporting cooperation. Intuitively, under uncertainty asymmetries about views on the expected losses from climate change are as important as differences in objective (but elusive) vulnerabilities.