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Environmental Law and Economics pp 355–377Cite as

Emission Trading Schemes: A Coasean Answer to Climate Change?

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Part of the book series: Economic Analysis of Law in European Legal Scholarship ((EALELS,volume 4))

Abstract

Emission Trading Systems (ETS) have long been appraised as the most economic efficient policy instrument to tackle climate change. In their theoretical construction, ETS draw upon the Coase theorem stating that environmental protection should be left to the forces of the free market through an economically efficient allocation of property rights. The current ETS, however, are a problematic implementation of Coase ’s theory, with structural deficits leading to high transaction costs and undermining cost-effectiveness . This contribution provides an overview over the theoretic foundations underlying market-based mechanisms, illustrates current deficiencies and presents potential improvements.

It would clearly be desirable if the only actions performed were those in which what was gained was worth more than what was lost.

Ronald Coase, 1960

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Notes

  1. 1.

    Hardin 1968, p. 1245.

  2. 2.

    See Coase 1960.

  3. 3.

    Coase 1960, p. 2.

  4. 4.

    For an extensive discussion of the structure of liability regimes in an international environmental law context see Bergkamp 2011.

  5. 5.

    Exxon paid $2.1 billion USD for clean-up and over 1 billion USD for other private claims.

  6. 6.

    In July 2015, BP agreed to pay 18.7 billion USD in fines, making it the largest corporate settlement in U.S. history.

  7. 7.

    Gollier and Tirole 2015, p. 8.

  8. 8.

    Coase 1960, p. 18.

  9. 9.

    Aldy and Stavins 2011, p. 3.

  10. 10.

    See OECD 2015.

  11. 11.

    For an extensive discussion on BTA see Kaufmann and Weber 2011; Weber 2015.

  12. 12.

    Aldy and Stavins 2011, p. 3.

  13. 13.

    Aldy and Stavins 2011, p. 3.

  14. 14.

    Shadikhodjaev 2014, p. 2 et seqq.

  15. 15.

    Stern 2007, p. 27.

  16. 16.

    Frankel, Jeffrey. 2008, p. 11.

  17. 17.

    OECD 2009, p. 6.

  18. 18.

    Stavins 2003, p. 2.

  19. 19.

    Weber 2014, p. 612.

  20. 20.

    Weber 2014, p. 612 with reference to Kaufmann and Weber 2011.

  21. 21.

    Aldy and Stavins 2011, p. 2.

  22. 22.

    Stavins 2003, p. 2.

  23. 23.

    Stavins 2003, p. 2.

  24. 24.

    Stern 2006, p. 309; Aldy and Stavins 2011, p. 4.

  25. 25.

    Stavins 2003, p. 9; Aldy and Stavins 2011, p. 4, p. 8, p. 12.

  26. 26.

    See Chapters 4 and 5.

  27. 27.

    OECD 2009, p. 12.

  28. 28.

    McCann 2013, p. 253.

  29. 29.

    Coase 1960, p. 15.

  30. 30.

    Coase 1960, p. 15.

  31. 31.

    Coase 1960, p. 16.

  32. 32.

    McCann 2013, p. 253 with reference to Ofei-Mensa and Benett 2013.

  33. 33.

    Kohn 1991, p. 315.

  34. 34.

    McCann 2013, p. 259.

  35. 35.

    McCann 2013, p. 255.

  36. 36.

    See ICAP 2015.

  37. 37.

    ICAP 2015, p. 20 et seq.

  38. 38.

    The Economist, April 20 2013.

  39. 39.

    Convery 2009, p. 392 et seq.

  40. 40.

    See Directive 2003/87/EC of the European Parliament and the Council of 13 October 2003 establishing a scheme for greenhouse gas emission allowance trading within the Community and amending Council Directive 96/61/EC, http://eur-lex.europa.eu/legal-content/DE/TXT/?uri=CELEX%3A32003L0087.

  41. 41.

    See Directive 2009/29/EC of the European Parliament and of the Council of 23 April 2009 amending Directive 2003/87/EC so as to improve and extend the greenhouse gas emission allowance trading scheme of the Community, http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32009L0029.

  42. 42.

    Japan has put in place a local emission trading system for the district of Tokyo in 2000, which was followed by a national voluntary system im 2005. In Canada, discussions about a national ETS are ongoing for decades, whereas several provinces have already established local ETS.

  43. 43.

    Negotiations about a linkage of the EU-ETS with Switzerland are ongoing since 2011.

  44. 44.

    http://ec.europa.eu/clima/policies/transport/aviation/index_en.htm.

  45. 45.

    Weber 2008, p. 485.

  46. 46.

    Weber 2008, p. 485.

  47. 47.

    Friend of the Earth Europe2010, p. 3.

  48. 48.

    http://ec.europa.eu/clima/policies/ets/faq_en.htm.

  49. 49.

    http://ec.europa.eu/clima/policies/ets/faq_en.htm.

  50. 50.

    Article 10 of the Directive 2003/87 sets forth that for the first phase at least 95% of the allowances should be free allowances and at least 90% for the second phase 2008–2012.

  51. 51.

    For an more excessive overview over the problematics of windfall profits see Point Carbon 2008.

  52. 52.

    http://ec.europa.eu/clima/policies/ets/faq_en.htm.

  53. 53.

    ICTSD 2015.

  54. 54.

    Weber 2008, p. 70; The Economist from April 20 2013.

  55. 55.

    Friend of the Earth Europe 2010, p. 5.

  56. 56.

    European Commission,http://ec.europa.eu/clima/policies/ets/cap/index_en.htm.

  57. 57.

    http://ec.europa.eu/clima/policies/strategies/2030/documentation_en.htm.

  58. 58.

    European Commission, http://ec.europa.eu/clima/policies/ets/cap/auctioning/index_en.htm.

  59. 59.

    ICTSD 2015.

  60. 60.

    See Stavins 1995, p.134; Heindl 2012.

  61. 61.

    Stavins 1995, p. 135.

  62. 62.

    Convery, p. 14 and Jaraite, Convery and Di Maria 2009, p. 11.

  63. 63.

    European Commission 2016, http://ec.europa.eu/clima/policies/ets/monitoring/index_en.htm.

  64. 64.

    Heindl 2012, p. 16.

  65. 65.

    Heindl 2012, p. 16.

  66. 66.

    Enviros 2006, p. 11.

  67. 67.

    Jaraite, Convery and Di Maria 2009, p. 14.

  68. 68.

    Sandbag 2014, p. 1.

  69. 69.

    Böhringer 2014, p. 9.

  70. 70.

    Friends of the Earth 2010, p. 6.

  71. 71.

    http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:52014PC0020.

  72. 72.

    Stavins 1995, p. 136 and 145.

  73. 73.

    Heindl (2012) calculated these costs to amount for 69 percent of the overall transaction costs.

  74. 74.

    See Jaraite, Convery and Di Maria 2009.

  75. 75.

    FCCC/CP/2015/L.9/Rev.1: https://unfccc.int/resource/docs/2015/cop21/eng/l09r01.pdf.

  76. 76.

    Friend of the Earth 2010.

  77. 77.

    See e.g. Haites, and Mehling 2009.

  78. 78.

    Jakob Gallmann 2008, p. 130.

  79. 79.

    Morris et al. 2012, p. 3 and p. 4.

  80. 80.

    Morris et al. 2012, p. 3 and p. 4.

  81. 81.

    Morris et al. 2012, p. 5.

  82. 82.

    See EPA http://www3.epa.gov/otaq/climate/regs-light-duty.htm.

  83. 83.

    COP 21 2015, http://www.cop21.gouv.fr/en/china-has-promised-to-cut-emissions-from-its-coal-power-plants-by-60-by-2020/.

  84. 84.

    Stiglitz 2006, p. 185.

  85. 85.

    See e.g. Appellate Body Report, European Communities – Measures Concerning Meat and Meat Products (Hormones), WT/DS26/AB/R, WT/DS48/AB/R, adopted 13 February 1998; Appellate Body Report, United States —Measures Concerning the Importation, Marketing and Sale of Tuna and Tuna Products, WT/DS381/AB/R, adopted 16 May 2012; Appellate Body Report, United States —Certain Country of Origin Labelling Requirements (COOL), WT/DS384/AB/R WT/DS386/AB/R, adopted on 29 June 2012; Appellate Body Report, European Communities —Measures Prohibiting the Importation and Marketing of Seal Products, WT/DS400/AB/R, WT/DS401/AB/R, adopted on 22 May 2014.

  86. 86.

    See WTO 2015, https://www.wto.org/english/news_e/news15_e/envir_14dec15_e.htm.

  87. 87.

    Friends of the Earth 2010, p. 12.

  88. 88.

    Stavins 1995, p. 145.

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Acknowledgement

The author would like to thank MLaw Rika Koch for her very valuable support in the preparation of this article.

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  1. Faculty of Law, University of Zurich, Zurich, Switzerland

    Rolf H. Weber

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  1. Faculty of Law, University of Lucerne, Lucerne, Switzerland

    Klaus Mathis

  2. Notre Dame Law School, University of Notre Dame, Notre Dame, Indiana, USA

    Bruce R. Huber

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Weber, R.H. (2017). Emission Trading Schemes: A Coasean Answer to Climate Change?. In: Mathis, K., Huber, B. (eds) Environmental Law and Economics. Economic Analysis of Law in European Legal Scholarship, vol 4. Springer, Cham. https://doi.org/10.1007/978-3-319-50932-7_14

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