Sustainable Development and Market Liberalism's Shotgun Wedding: Emissions Trading Under the Kyoto Protocol

Abstract:     
This article analyzes the international emissions trading regime at the heart of the world's 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's goal of maximizing short term cost effectiveness and sustainable development's goal of catalyzing technological change for the benefit of future generations. This article presents new data and theory unsettling the traditional view that market mechanisms encourage innovations vital to sustainable development. Market actors fail to take positive spillovers, e.g. 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's ideal of comprehensive evaluation of costs and benefits conflicts with its preference for free markets. Conversely, sustainable development advocates' 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.

Number of Pages in PDF File: 68

Keywords: spillovers, emissions trading, Kyoto Protocol, Global warming, Market-based mechanisms, market liberalism, sustainable development, innovation, renewable energy

JEL Classification: I18, K32, O31, O33, Q28, Q48

Accepted Paper Series