With all the buzz and anti-buzz about the climate change talks in Copenhagen, it’s easy to get caught up in the dis-empowering idea that a global Emission Trading Scheme (ETS), agreed upon top-down, at Copenhagen (or maybe at the next conference…) is the only hope for meaningful action on climate change. After all, climate change is a global problem, with huge free-rider risks, so it must require a global solution, right?
Nobel prize-winning economist Elinor Ostrom makes the case, in her working paper “A Polycentric Approach for Coping with Climate Change” that a better response to the problems of climate change is ‘polycentric’ with a diversity of responses occurring simultaneously in different geographical locations and at different levels of government and society.
The advocates of ‘more markets’ and ‘minimal government’ would like us to think they know the secret to efficient and effective regulation of human behaviour. But can we really apply such neoliberal thinking to the climate change crisis? Can the application of more markets possibly fix what Nicholas Stern (2006) describes as “the greatest market failure in history”?
In 2008, Robert Baldwin, professor of law at the London School of Economics, published a working paper that examines the case for and against emissions trading as effective regulation.
What I want to look at here is Baldwin’s analysis of the regulatory philosophy which underpins the current trading approach to reducing greenhouse gas emissions. Disturbingly, he finds an erosion of democratic accountability and reduced expectations of legitimacy; this is what he calls “regulation lite.”
On its climate change information website, the New Zealand government explains how:
An emissions trading scheme (ETS) introduces a price on greenhouse gases to provide an incentive for people to reduce emissions and enhance forest sinks. Emissions trading provides flexibility in how participants comply with their obligations, enabling a least-cost response.
There are, of course, other ways to reduce emissions, such as traditional regulatory mechanisms. Pejorative phrases such as ‘command-and-control’ are usually used in the brief moment before regulation is dismissed from consideration. Indeed, the NZ Ministry for the Environment (MfE) asserts that imposing a price on greenhouse gas emissions is advantageous because:
It harnesses the market dynamic by providing automatic incentives for firms to invest in reducing emissions and to shift to lower-emissions products and services.
It provides flexibility for firms and fosters innovation and the seeking out of least-cost emission reduction strategies.
But something rather important is being glossed over here: An ETS doesn’t provide an automatic incentive for all firms to reduce emissions.
And, it turns out, this simple observation leads to some very awkward conclusions that have not been part of the carbon trading debate.
Climate change is what is known as a ‘wicked’ problem . That’s not a street term – it is a formal academic term for problems which suffer from:
— incomplete description,
— changing parameters, and
— complex interdependencies,
to which we might add
— a limited time frame to reach solutions,
— the lack of a single authority to implement solutions, and
— our own involvement in generating both problem and solutions.
Furthermore, a solution to one part of a wicked problem can reveal or cause new aspects of the problem.