Unilateral Climate Regulation

Abstract

It is now plain that decades of negotiation toward a binding global climate treaty have failed. Yet, at the same time, many nations are adopting a range of unilateral policies to address climate change. The existing literature on climate policy neglects these unilateral climate regulations because it focuses on the necessity and possible design of a multilateral climate treaty. But these domestic regulations present a unique puzzle: given that climate outcomes are determined by global emissions, and that unilateral regulations inevitably influence incentives to regulate elsewhere, how can domestic action achieve the greatest marginal reduction in global emissions? In other words, how can regulators encourage, rather than discourage, action in other countries?

This Article answers this question by describing three ways that unilateral regulation influences incentives to regulate in other countries. First, domestic regulations can interact with other nations’ regulations in a way that increases those countries’ incentive to regulate. Second, unilateral regulation can support incentives to regulate elsewhere by limiting the incentive for polluters to move, or “leak,” to countries with weaker regulation. Third, unilateral regulations that are modular and simple will serve as potential model rules in a wider swathe of countries. These considerations have important implications for regulators looking to maximize the global impact of their unilateral actions. They suggest that, contrary to the received wisdom in climate policy, regulators should prefer regulation with publicly transparent costs. They also suggest that, contrary to the current state and federal preference for cap-and-trade systems and energy-efficiency standards, unilateral regulators should prefer carbon taxes and funding for green technology.

Keywords: matching commitments, linking climate regulation, carbon leakage, energy policy, cap-and-trade, carbon tax, greenhouse gas emissions