Nobody Cares About Climate Anymore: How One Economic Theory Crushed Environmental Idealism
- Marceli Dziuba
- 6 days ago
- 7 min read
A tale of political cynicism and free-riding.
As early as the 19th century, scientists suggested that humans could, in principle, change Earth’s climate by emitting specific atmospheric gases. However, real scientific consensus has developed since the 1980s. Currently, 97% of scientists agree that the Earth is warming due to human actions, a statistic famously quoted by President Barack Obama. Unfortunately, this consensus in the scientific community does not translate into a political one. Even in 1992, Democratic vice-presidential candidate Al Gore clashed with George H.W. Bush’s administration over this issue, and since then, the topic has become even more partisan. Although European politics were not as divided on this issue historically, they are increasingly aligning with the American trajectory. Moreover, we can observe the EU establishment backtracking on its ambitious climate goals, with these policies also becoming less popular among the wider public.
Why is this happening?
Most importantly, combating climate change is extremely costly. The International Energy Agency estimates that reaching “net-zero” goals will cost $4 trillion yearly over the next three decades, by comparison, this is nearly Japan’s GDP in 2023. However, according to a recent study by Adrien Bilal and Diego R. Känzig, if we have a business-as-usual approach in this area, the Social Cost of Carbon will be $1,367 per ton by the end of this century. For context, according to Statista, in 2023, our global economy has emitted 37.01 billion metric tons of carbon dioxide. So, if we multiply those two numbers, we will get around $51 trillion, which translates to the combined GDP of the US, China, Germany, and Spain. Moreover, this does not even account for the positive trajectory of CO2 emissions, which will occur in this scenario. Where do those costs come from? Mainly from rising sea levels, climate disasters, and transforming given parts of our World into inhabitable areas. Therefore, the cost-benefit analysis is pretty clear, so why do we not follow the “more profitable” path?
We can identify at least a couple of reasons. The most straightforward one is climate denialism, whose popularity stems from a comparatively low trust in science today; for example, in the US, according to Brian Kennedy and Alec Tyson. It is also psychologically comfortable to ignore or deny a potential threat to one's livelihood, which the fight against climate change imposes, as it requires money that we now spend mostly on consumption. Moreover, nationwide and generational egoism certainly play a role. In the case of Russia, the cost-benefit analysis of investing in green energy can appear completely different, as global warming will provide them with more habitable land in Siberia, access to resources currently hidden beneath permafrost, and possible shipping routes through the Arctic region. Furthermore, we know that the worst consequences of climate change will occur in the second half of this century, so most of the boomer generation will not be affected by them, and they are overrepresented in decision-making positions in our current society. In contrast, higher energy prices and tighter national budgets will significantly impact their finances. Additionally, the benefits of “net-zero” investments are not as visible, since their goal is primarily to conserve the current global climate. Of course, alternatively, we will face heat waves, droughts, floods, and more. Nevertheless, if we choose an eco-friendly path, we will not observe this comparison between today and warmer climate scenarios. However, when the government invests in a road, the positive change is immediately visible, so this kind of allocation of government funds can be perceived more beneficially.
To finish off with some bitter news, climate catastrophes will affect countries independently of their individual emissions. At the end of the day, global production of greenhouse gases counts. Therefore, if other countries do not seem to care in the long run perspective, ultimately, our country will suffer climate change consequences. Additionally, we will spend money to avoid it, so it is a lose-lose scenario. The problem is I kind of agree with this line of logic.
Have I fallen into a climate denial rabbit hole?
Well, I hope not, but there is some evidence behind this reasoning. According to the Emissions Database for Global Atmospheric Research, the EU-27 net greenhouse gas emission fell between 1990 and 2022 by 31%, whereas this statistic has increased by 62% for a total of all countries. Of course, some countries can be excused as they were not emitting as much CO2 historically and they are not developed yet, but for example, Canada had a massive increase… Moreover, the EU is responsible for 6.08% of global emissions, so we need to cooperate with others and try to do so. The Paris Agreement is a recent example. However, the U.S. - the world's second-largest polluter - has withdrawn twice in the past five years. As we know, combating climate change requires a long-term commitment to “net-zero” goals, but this is not another article about Donald Trump, because there is one economic theory that can explain this lack of global cooperation.
Game Theory applied to “net-zero” policies
To recall first-year economics class. Game theory is a set of mathematical tools to study strategic interactions between two or more actors. The most popular example of its application is the prisoner’s dilemma, where the two prisoners can either choose to confess or deny. The most optimal choice for two prisoners combined would be to deny. However, in this situation, both of them have an incentive to cheat the other to maximize their own individual gain. Thus, the theoretical prediction is that they will both end up confessing because then they could not improve their situation by deviating unilaterally. This is the so-called Nash equilibrium.
Now, let’s apply this logic to global cooperation in addressing climate change. I have chosen the Iterated Public Goods Game (IPGG) with Weighted Contributions and Randomized Payoffs, a game-theoretic model designed to examine collective action problems in which multiple players contribute to a shared resource. You can think of this as an extension of Prissoner’s dilemma model with more players representing the ten largest emitters, with their contributions reflecting green investments. These contributions are weighted based on each country's GDP and greenhouse gas (GHG) emissions. The public good in this scenario is the mitigation of climate change costs, which are estimated to reach $300 trillion by 2100 (though this figure carries a degree of uncertainty).
To account for the unpredictability of climate impacts, payoffs are partially randomized, as it is impossible to determine precisely how climate change will affect each country. However, they remain proportional to both the country's GDP and the total public good. Additionally, I have incorporated a critical contribution threshold of $4 trillion per iteration, based on an estimate from the International Energy Agency regarding the investment required to achieve "net-zero" by 2050. This assumption implies that if contributions fall below this level, the benefits of avoiding climate damage decline sharply. Conversely, surpassing this threshold leads to slower growth in avoided damages, since climate-related costs do not increase linearly with global temperature rise.
The game spans 27 iterations, corresponding to the years from 2023 (when the International Energy Agency updated its report) to 2050 (the target year for global net-zero emissions). The initial iteration begins with a total contribution of $1.7 trillion, which represents the global investment in "net-zero" initiatives in 2023, as reported by the Climate Policy Initiative. Ultimately, this framework yields the following graph:
What do these results indicate? Firstly, the model predicts significant underinvestment, as the $4 trillion target is never met in any iteration. This implies a scenario in which global temperatures rise by at least 2.5°C, leading to severe consequences from climate change. In such a situation, a country making relatively high investments would find itself in a lose-lose position.
What does this mean for EU climate policy? In any game-theoretic model that unfolds over multiple iterations, the best strategy for a player is to adapt to the decisions of others. For instance, in the infinitely repeated Prisoner's Dilemma, recommended strategies include tit-for-tat or trigger methods. The same principle applies to this model. However, applying this logic to the current situation would lead to a severe reduction in EU climate funding. This is because the EU’s most significant partner in this effort - the United States - has already withdrawn its commitment twice, and current investment levels remain far below what is required.
Bitter Conclusion
Is there any hope for the world to avoid climate catastrophe? Probably not in the most efficient way, but history shows that societies have managed to overcome free-riding and cooperation challenges - perhaps not optimally, but close enough. Consider public transportation or the European Union. In both cases, the most efficient outcome would be for individuals or member states to fully comply - whether by purchasing tickets or adhering to agreements. However, in reality, people often do not. Yet, these institutions have not collapsed. Instead, they function through less efficient means of cooperation. For the EU, this means maintaining administrative bodies to monitor member compliance, while public transportation systems employ ticket inspectors to enforce the rules, but who would control world leaders to combat CO2emissions?
The key challenge in addressing climate change is that no global institution exists to enforce compliance in all countries, and it is unlikely that such an entity will emerge anytime soon. In theory, punitive measures could take the form of tariffs restricting trade with high-emission countries - an approach once considered under the European Green Deal. However, in today’s world, where the threat of trade wars is ever-present and often requires little justification, such measures may not be as effective as intended.
Does this mean the EU should abandon its environmental regulations and green investments? Not necessarily. Some of these initiatives are economically viable on their own or provide significant local environmental benefits -such as anti-smog policies - which justify them independently of the broader climate crisis. However, policies that rely heavily on achieving global "net-zero" targets may ultimately be suboptimal.
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