Yes, the answer that evolves is co-operation, i.e. in the real world, regulations and legislation, binding all the individual players to do the thing that's best for all of them and punishes defectors to ensure incentives are aligned.

The better analogy for the prisoners dilemma is a drug deal or a spy swap. How can you trust the other person to do the right thing with no legal system to enforce penalties if they don't? Without that, less deals are made than they would otherwise, a loss of efficiency.

I don't think anyone has much of a problem with a legal system that restricts itself to contract enforcement.

Yeah, I'm sure the fossil fuel industry would be overjoyed if they couldn't dump CO2 into the atmosphere without first contracting with every person and animal on earth to reimburse them.

Carbon taxes (or alternatively cap-and-trade) are light-touch regulations favoured by many economists to deal with CO2.