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Market Darwinism vs. Market Creationism: Adaptability and Fairness in the Design of Greenhouse Gas Trading Mechanisms

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Abstract

International rule-making and compliance routines with respect to the Kyoto Protocol are evolving rapidly. This paper examines potential designs of emissions-trading programs by comparing the emissions credit trading (ECT) and cap-and-trade models for achieving cost-effective reductions in atmospheric greenhouse-gas (GHG) loading in terms of their adaptability and fairness. Adaptability is a valuable attribute when markets and their governing institutions are evolving rapidly or when regulated entities do not yet have well-established and predictable compliance routines. Fairness in both procedures and outcomes is central to efforts to establish and maintain institutions of international governance. The key difference concerns the awarding of tradable emission rights, which occurs at the launch of a cap-and-trade program but following when firms reduce emissions below baselines in an ECT scheme. Implications of this difference are explored in terms of institutional adaptability and fairness during program-design stages. By not locking in emission rights at the outset, and by being amenable to incremental roll-out, ECT appears to have superior adaptive and fairness qualities during periods of rapid institutional evolution.

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Haddad, B.M., Palmisano, J. Market Darwinism vs. Market Creationism: Adaptability and Fairness in the Design of Greenhouse Gas Trading Mechanisms. International Environmental Agreements: Politics, Law and Economics 1, 427–446 (2001). https://doi.org/10.1023/A:1013330417973

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  • air pollution regulation
  • allowance trading
  • emissions trading
  • greenhouse gases
  • international institutions
  • Kyoto Protocol
  • market-based mechanisms
  • regulatory program design