Abstract
Climate change is the consequence of a market failure, with private actors’ incentives misaligned on a global scale and across multiple generations. Government policies to address climate change remain inadequate and the near term prospects are suspect. Analysts have turned their attention to finding alternative approaches to reducing greenhouse gas emissions. Green clubs offer a potential institutional mechanism for reducing greenhouse gas emissions, but to be effective they must be designed to fit their circumstances. An effective green club solves a market or quasi-market failure among firms and their stakeholders. Focusing on the market and nonmarket strategic imperatives for green clubs identifies several important considerations for improving the effectiveness of green clubs. Green clubs addressing climate change are more likely to be effective if they provide potential participants with a private benefit they are unable to achieve through other means and when the private benefits participants receive are tightly linked to the environmental benefits the club produces. Analyzing green clubs through this lens suggests that environmental certification club goods are more promising candidates than environmental technology club goods.
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Notes
Green clubs are sometimes also called “voluntary environmental programs, with “voluntary” here implying the absence of a state mandate or legal requirement that firms must produce the environmental goods required for club membership. Participation is therefore “voluntary” even if participants’ stakeholders employ legal means to persuade or otherwise induce participation.
An important set of considerations for these green technology clubs concerns property rights and antitrust regulations. The green technologies must be amenable to licensing or other property rights structures so that they can be exchanged in a market or quasi-market setting. Antitrust regulations may preclude the type of cooperation and knowledge sharing required for a green technology club. This paper assumes that both issues can be adequately resolved for any green technology club, although further inquiry would be required to justify this assumption.
Stewart et al. (2013a, b) p. 17–18) also suggest that clubs could address climate change by solving coordination problems among actors, including harnessing network externalities that increase the value of a climate improving technologies or practices. The International Organization for Standardization performs this function across a broad range of international trade areas . It is hard to think of examples of climate improving technologies that are under adopted due to coordination or network externality problems. The ISO’s environmental management standard (ISO 14001), for example, is more plausibly interpreted as ensuring that participants’ practices are sufficiently rigorous rather than coordinating so that they are the same. Finally, it is not clear whether institutions performing purely coordination roles would need to be “clubs” in the Buchanan (1965) sense of the term in which the club sponsors offer a non-excludable good in exchange for membership dues. Nonetheless, the role of coordination and network externalities in addressing climate change, though beyond the scope of this article, is worthy of further study.
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This article is part of a Special Issue on “Alternate Structures for Global Climate Action: Building Blocks Revisited” edited by Richard B. Stewart and Bryce Rudyk.
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Potoski, M. Green clubs in building block climate change regimes. Climatic Change 144, 53–63 (2017). https://doi.org/10.1007/s10584-015-1517-9
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DOI: https://doi.org/10.1007/s10584-015-1517-9