Linkage and Multilevel Governance

Economic models of emissions trading implicitly assume a simple unitary governance structure, where a single regulator designs and enforces an emissions trading program. The Kyoto Protocol, however, employs a multilevel governance structure in which international, regional, national, sub-national, and even private actors have significant roles in designing and enforcing the trading program. Under this structure, international trading of credits requires complex linking of disparate regional, national, and subnational trading program. This paper describes the multilevel governance model employed in the Kyoto Protocol and then analyzes some of the problems this complexity creates for the project of creating an international market in environmental benefit credits to realize technology transfer benefits. This paper shows that multilevel governance creates costs that can interfere with technology transfer and free trade in credits. It concludes that rules sufficiently stringent to encourage technology transfer in the face of significant additionality problems will likely burden free trade in credits. Unfortunately, rules sufficiently relaxed to make international transactions simple and problem free will lack integrity and spawn non-additional credits greatly limiting the Kyoto Protocol\u27s potential as a technology transfer mechanism. The paper suggests that these governance complexities counsel against automatic embrace of linkage

The Economic Dynamics of Environmental Law: Cost-Benefit Analysis, Emissions Trading, and Priority-Setting

An economic dynamic approach to environmental law offers a more promising avenue for regulatory reform that the current static-efficiency-based approach. An economic dynamic approach seeks to emulate the creativity and innovation that free markets sometimes produce, instead of the efficiency that the economists ascribe to it for purposes of economic modeling. Environmental law must cope with a predictable set of economic dynamics. Population and consumption increases tend to increase pollution and natural resource destruction over time while empowering dirty old industries. We need a reform agenda focused on regulatory design that encourages innovations adequate to cope with significant environmental change over time. Such an agenda would emphasize changes in regulatory process to reduce the influence of existing dirty industries, regulatory designs that encourage innovation, and creative efforts to circumvent problems with languid and sometimes ineffectual governmental decisionmaking processes

Distributing the Costs of Environmental, Health, and Safety Protection: The Feasibility Principle, Cost-Benefit Analysis, and Regulatory Reform

This Article offers a normative theory justifying the feasibility principle animating many environmental statutes. The feasibility principle avoids widespread plant shutdowns while maximizing the stringency of regulation that does not close plants. This principle offers a reasonable, democratically chosen response to distributional concerns and provides meaningful guidance regarding both maximum and minimum stringency. Pollution’s tendency to concentrate severe harms upon randomly selected victims justifies this approach’s stringency. Normally, widely distributed costs cannot justify failing to protect people from death, illness, and ecological destruction. But the principle’s constraints apply in the one situation where some initial restraint might be justified, when regulation threatens to produce widespread shutdowns that concentrate significant harms on individuals. The feasibility principle offers a rational alternative to CBA. Indeed, a comparison between CBA shows that the feasibility principle offers a more sensible way of taking cost into consideration than CBA does

Design, Trading, and Innovation

This article questions the conventional theory purporting to establish that environmental benefit trading encourages innovation better than comparable traditional regulation. It argues that the induced innovation hypothesis, that high costs encourage innovation, suggests that trading would lessen incentives for innovation by lowering the cost of complying with conventional approaches. The conventional theory relies upon the incentive emissions trading creates for polluters to make additional reductions in order to sell credits. But emissions trading also creates incentives for half of the pollution sources (the credit buyers) to make less reductions than they would under a traditional regulation. By focusing analysis only upon the sellers of credits, the traditional theory systematically biases results. Trading\u27s inferiority is especially apparent with respect to high-cost innovation. Even innovation that costs a lot now can prove economically and environmentally superior over the long run, because innovation can make costs of new techniques fall over time and some innovations provide very wide ranging environmental benefits. But trading encourages selection of the techniques with the cheapest current cost, not the cheapest long-term cost or the greatest long-term value. It also argues that design variables, such as the stringency of regulation and the quality of monitoring play an important role in encouraging (or failing to encourage) innovation. And it argues that neither traditional regulation nor environmental benefit trading stimulate innovation especially well, because government often regulates weakly. The article suggests an alternative economic incentive program that would maximize incentives for innovation and progress on environmental problems. This article forms part of a larger project arguing for an economic dynamic approach to environmental law and law and economics. The author\u27s book, The Economic Dynamics of Environmental Law (MIT Press 2003), sets out the full theory

Sustainable Development and Market Liberalism\u27s Shotgun Wedding: Emissions Trading Under the Kyoto Protocol

This Article analyzes the international emissions trading regime at the heart of the world\u27s effort to address global warming as a means of exploring broader international governance issues. The trading regime seeks to marry two models of global governance, market liberalism, which embraces markets as the model of global governance, and sustainable development, which seeks to change development patterns to protect future generations. This Article explores a previously unacknowledged tension between market liberalism\u27s goal of maximizing short-term cost effectiveness and sustainable development\u27s goal of catalyzing technological change for the benefit of future generations.T his Article presents new data and theory unsettling the traditionalv iew that market mechanisms encourage innovations vital to sustainable development. Market actors fail to take positive spillovers-for example, benefits accruing to competitors and thence to future generations-into account in making technological choices. Because of this failure to take long-term economic development into account, the international trading markets have contributed far less to sustainable energy development than more targeted programs. Consideration of these spillovers yields fresh insights. Market liberalism\u27s ideal of comprehensive evaluation of costs and benefits conflicts with its preference for free markets. Conversely, sustainable development advocates\u27 tendency to rely on collective decision making to make difficult technological choices may prove unrealistic. This Article unsettles prevailing notions of governance and seeks to stimulate a richer, more subtle discourse about the roles of government and markets in addressing global problems