Limits of market-based strategies for slowing global warming: The case of tradeable permits

Abstract

Concern over an enhanced greenhouse effect has yielded interest in an international effort to control rising concentrations of greenhouse gases. Among the possible mechanisms for doing this is a comprehensive marked-based approach. This approach would establish a global system of tradeable permits for the sources and sinks of the major greenhouse gases: carbon dioxide (CO₂), nitrous oxide (N₂O), methane (CH₄), and tropospheric ozone (O₃). (Chlorofluorocarbons (CFCs) are not closely considered here because they are already controlled under the Montreal Protocol on Substances that Deplete the Ozone Layer.)

The main finding is that - with the possible exception of CO₂ - not enough is currently known about these gases to accurately monitor such a system of tradeable permits. The main argument is made on the basis that the anthropogenic sources and sinks of non-CO₂ gases are quite uncertain, making nation-by-nation monitoring very difficult. Also, monitoring many of the sources and sinks for these non-CO₂ gases will be very complicated - the administrative costs of the endeavor may be much larger than benefits of including these gases in a global system of tradeable permits. One alternative to the proposed comprehensive marked-based approach is a more limited system that includes only CO₂. This finding has broader application to all greenhouse control mechanisms, not just tradeable permits.

In addition to these natural science-related issues, the paper also briefly raises several other issues such as fear that markets will allow firms to ‘buy up the environment.’