12.3 Challenges and future research needs
12.3.1 Solving the overarching global coordination problem
Globalization has led to efficient resource flows and increased consumer welfare over the last century, providing a leading historical example of successful division of labor. Global markets for resources and goods have served as an efficient coordination mechanism, bringing together supply and demand and signaling scarcity by (global) prices. However, global markets have not yet been able to address the increasingly urgent challenge of climate change, as management of global commons and associated externalities will require additional global institutions which are not yet installed.
As climate change is a problem of global dimension, its institutional solution should include developing and emerging economies. It requires global carbon neutrality by middle of the century. However, both the burden posed by climate change and the benefits associated with its alleviation are distributed unevenly across countries, leading to heterogeneous incentives to participate. To inform policy makers, it will be crucial to research how the international distribution of the costs and benefits of climate change and climate policy could be affected by various compensation mechanisms and institutional solutions.
Furthermore, technologies and business models to close material cycles must be developed. These should follow the waste hierarchy: reducing material use and wastes, reusing products, and recycling materials. Combustion, in combination with Carbon Capture and Storage (CCS) or Carbon Capture and Utilization (CCU), is an option for materials which cannot be recycled. Technologies and business models that should be developed include recycling design, logistics for the collection of discarded products, sorting and recycling technologies, as well as the digitalization of material flows. Economic incentives will strengthen the implementation of these technologies.
To identify optimal institutions which could successfully address climate change, it is con- ceptually useful to recognize climate change as a problem of global policy coordination, in which the strategic interaction of actors determines the individual and social desirability of outcomes.3 Solutions to such problems have to be resilient against the ubiquitous issue of potential free-rider behavior. In the case of climate change, the problem is particularly intricate as international actors are involved. Research from both game-theory and political-economy perspectives will be important to address this global policy coordination problem.4
The complexity of the problem is increased further by taking a global fairness perspective, in which the large development needs of poorer countries and the incentives of the owners of fossil
3
Auerswald et al. [6] and Buob and Stephan [7] discuss the intricate relationship between mitigation and adaptation efforts, showing that unilateral mitigation efforts might even increase global emissions.
4Nordhaus [8] suggests an approach for overcoming free-riding in international agreements on climate policy based on the idea of climate clubs: stable coalitions might be encouraged by implementing a regime with small trade penalties on non-participants.
fuels to protect their privileges are also considered. Additional research is necessary to explore the possibility of forming an international alliance for joint mitigation efforts. The potential and limitations of installing a global carbon market as the principal coordination device should be confronted with research on alternative instruments. Specifically, further research should compare the bargaining approach (insistence on reciprocity) with an approach of leading by example.5
Functional global institutions require ongoing effectiveness evaluations and processes for their corresponding adaptation. Therefore, the establishment of global monitoring efforts and observa- tory processes is needed to assess progress and quickly identify unintended side effects and their origins. Future research should provide the conceptual basis for this endeavor. Monitoring efforts should adhere to harmonized measurement procedures and accounting rules, ideally via a global system that accounts for entire life cycles of goods (in Life Cycle Assessments, LCA).
Similarly, it will be crucial to identify and estimate the total system cost of traditional and future patterns of production and consumption in a comprehensive approach that considers exter- nalities. Further research will be required to clarify whether important prerequisites for sustainable production are met, e.g. the sufficient provision of sustainable resources or energy sources at the right location. Research might focus on questions of whether, how, and from where sufficient sustainable input factors could be produced or, if necessary, imported.
This discussion holds especially true for the chemical industry. For example, is it optimal to use renewable raw materials or to recycle waste? Are differences between continents and regions significant? And can the utilization of waste as raw materials contribute to economic growth and job creation? Generally, research is needed to deepen our understanding of the impact of a circular economy on future material flows, including inputs, products, and residuals/waste. Research should aim to understand not only the requirements, solutions, economics, and logistics of technological innovations, but also their societal consequences and resultant regulations.
Global regulation will have to reflect the global markets for energy-intensive goods, e.g. many metals and basic chemicals. As competition in these markets is global, companies will only be able to pursue sustainable production technologies if the negative externalities arising from other approaches are fully internalized (also see Section 11). If such a level playing field cannot be established, regulated, energy-intensive industries might suffer from carbon leakage. Further research is needed to establish which industries and companies would be particularly prone to this problem. Building upon that, economically sound as well as practically feasible instruments to counteract carbon leakage must be developed.
5
Cramton et al. [9] and MacKay et al. [10] suggest an approach to international climate negotiations which instead of a “pledge and review” approach pursues a “common commitment” scheme involving reciprocity.
While global regulation must certainly be ramped up, its acceleration should not be hasty.6 Disruptive developments could seriously harm financial market stability, and research is needed to establish optimal time frames for regulatory measures.
More research is also needed to discuss if and how negative emissions could contribute.7 Considerations should include how carbon could be stored and used and at what cost (e.g. Section 10), as well as what might impede public acceptance of such practices.
Finally, digitization could be a game-changer for climate change mitigation and sustainable production efforts. A whole array of research questions arises in this realm, such as understanding the technical aspects of using artificial intelligence (see Section 8) and the societal implications of the resultant human-machine interactions.