Implementation Challenges for Emission Trading Schemes: The Role of Litigation

Abstract

Within economic theory, emission trading schemes have long been advocated for their relative simplicity and their allocative and dynamic efficiency. Despite these apparent strengths, regulators have only recently started to meaningfully incorporate emission trading into their toolbox. This chapter focuses on an implementation challenge that does not necessarily present itself as such; litigation. Experiences with the EU ETS have made the potential impact of litigation on ETS development an increasingly salient issue for regulators. Nonetheless, the implications of litigation for the design and functioning of an ETS are less clear than some of the before mentioned implementation challenges. This chapter provides an analytical overview of the types of litigation that ETS are exposed to and the ways in which these different categories of litigation can, and have, affect(ed) ETS design and development.

Keywords: emissions trading, litigation, instrument design, EU ETS, US Acid Rain program

JEL Classification: K10, K32, K33, K00