Unraveling the global warming regime complex: Competitive entropy in the regulation of the global public good

University of Pennsylvania Law Review

Volumn 155, Issue 6, 2007, Pages 1981-2049

  Bluemel, Erik B ^a  

^a GEORGETOWN UNIVERSITY LAW CENTER   (United States)

Author keywords

[No Author keywords available]

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EID: 34548132428     PISSN: 00419907     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Conference Paper

References (391)

1. First Half of 2006 Warmest on Record in U.S., MSNBC.COM, July 18, 2006, http://www.msnbc.msn.com/id/13860976.
2. Marc Kaufman, Climate Experts Worry as 2006 Is Hottest Year on Record in U.S., WASH. POST, Jan. 10, 2007, at A1.
3. INTERGOVERNMENTAL PANEL ON CLIMATE CHANGE [IPCC], WORKING GROUP I, CLIMATE CHANGE 2007: THE PHYSICAL SCIENCE BASIS 5 (2007) [hereinafter IPCC, CLIMATE CHANGE 2007], available at http://ipcc-wgl.ucar.edu/wgl/Report/AR4WG1_SPM.pdf. ("Warming of the climate system is unequivocal . . . .").
4. Id. at 5;
5. see also IPCC, WORKING GROUP I, CLIMATE CHANGE 2001: THE SCIENTIFIC BASIS 2 (X. Dai et al. eds., 2001) [hereinafter IPCC, SCIENTIFIC BASIS] ("[I]t is very likely that the 1990s was the warmest decade ... in the instrumental record, since 1861." (footnote omitted));
6. 2 Emissions, N.J. L.J., Oct. 4, 2004, at 23 ("The five hottest years have all occurred since 1997 and the 10 hottest since 1990.").
7. IPCC, CLIMATE CHANGE 2007, supra note 3, at 13 tbl.SPM.3;
8. see also S. Pacala & R. Socolow, Stabilization Wedges: Solving the Climate Problem for the Next 50 Years with Current Technologies, SCIENCE, Aug. 13, 2004, at 968 (detailing possible options that can curb global warming over the next fifty years).
9. See, e.g., AL GORE, AN INCONVENIENT TRUTH: THE PLANETARY EMERGENCY OF GLOBAL WARMING AND WHAT WE CAN DO ABOUT IT (2006) (describing the devastating, irreparable effects of global warming).
10. A cap-and-trade system establishes a cap of total emissions of a pollutant within a particular sector and assigns individual quotas-based upon emissions units and totaling the cap-to companies. Firms that reduce their pollutant emissions below their individual caps may sell their surplus quotas to firms emitting above their individual caps. See Richard B. Stewart et al., Designing an International Greenhouse Gas Emissions Trading System, 15 NAT. RESOURCES & ENV'T 160, 160-61 (2001). An emissions-reduction trading system awards credits to firms emitting a pollutant below levels set by regulation. These credits may then be sold to other firms emitting above the regulated limit.
11. Id. at 161.
12. See generally Kal Raustiala & David G. Victor, The Regime Complex for Plant Genetic Resources, 58 INT'L ORG. 277 (2004) (outlining a theory of the regime complex).
13. An elemental regime can be nested within the regime complex or operate parallel to it. See generally INSTITUTIONAL DESIGNS FOR A COMPLEX WORLD (Vinod K. Aggarwal ed., 1998) (exploring nesting as an institutional reconciliation mechanism). Currently, all multilateral GHG emissions trading regimes are at least partially nested within the Kyoto Protocol regime complex. Although no multilateral trading regime has emerged to operate in parallel to the Kyoto Protocol framework, parallel trading regimes have been discussed, and other nontrading parallel regimes have been created. The impact of elemental regimes operating in parallel to the Protocol-such as the Asia-Pacific Partnership on Clean Development and Climate, Renewables Process, International Partnership for the Hydrogen Economy, Carbon Sequestration Leadership Forum, Energy Efficiency Partnership, and Methane to Markets Initiative-is, therefore, outside the scope of this Article.
14. In this Article, "liability" refers to the risk borne for a failed emissions trade or project; it does not refer to liability in a legal sense, though legal liability questions may arise as a result of the allocation of these risks.
15. See, e.g., Massachussets v. EPA, 127 S. Ct. 1438, 1455 (2007) ("The harms associated with climate change are serious and well recognized.");
16. David A. Grossman, Warming Up to a Not-So-Radical Idea: Tort-Based Climate Change Litigation, 28 COLUM. J. ENVTL. L. 1, 10 (2003) ("[D]espite the uncertainties that remain in climate science, the overwhelming scientific consensus ... is that anthropogenic global warming is occurring and that increased carbon dioxide concentrations are one of its major causes.");
17. Matthew F. Pawa & Benjamin A. Krass, Global Warming as a Public Nuisance: Connecticut v. American Electric Power, 16 FORDHAM ENVTL. L. REV. 407, 415 (2005) ("There is now a clear scientific consensus that global warming has begun and that most of the current global warming is caused by emissions of greenhouse gases, primarily carbon dioxide from fossil fuel combustion.");
18. James R. Drabick, Note, "Private" Public Nuisance and Climate Change: Working Within, and Around, the Special Injury Rule, 16 FORDHAM ENVTL. L. REV. 503, 511 (2005) (noting consensus among the scientific community that the burning of fossil fuels and other anthropogenic activities are the primary causes of global warming);
19. see also Donald M. Goldberg & Martin Wagner, Petitioning for Adverse Impacts of Global Warming in the Inter-American Human Rights System (2002), available at http://www.ciel.org/Publications/ Petitioning_GlobalWarming_IAHR.pdf
20. ("It is beyond dispute that human activities are causing global warming, as even the U.S. government now admits."). Indeed, "IPCCs conclusion that most of the observed warming of the last 50 years is likely to have been due to the increase in greenhouse gas concentrations accurately reflects the current thinking of the scientific community on this issue." COMM. ON THE SCI. OF CLIMATE CHANGE, NAT'L RESEARCH COUNCIL, CLIMATE CHANGE SCIENCE: AN ANALYSIS OF SOME KEY QUESTIONS 3 (2001). Remarkably, even the lead defendant in Connecticut v. American Electric Power has noted "[t]here is not a lot of debate in the scientific community that rising concentrations of green-house gases are occurring and will lead to climactic changes."
21. Melita Marie Garza, Reducing Pollution: Proposals Pushed to Tax Carbon Dioxide Emissions, CHI. TRIB., Mar. 28, 2004, at Cl (quoting Dale Heydlauff, Senior Vice President for Government and Environmental Affairs, American Electric Power).
22. Much of the debate about global warming was the result of a study that found that some areas of the Arctic were not warming. Peter T. Doran et al., Antarctic Climate Cooling and Terrestrial Ecosystem Response, 415 NATURE 517 (2002). The lead author of the study has publicly condemned the distortion of the study's findings for use as propaganda that global warming is not occurring.
23. See Peter Doran, Op-Ed., Cold, Hard Facts, N.Y. TIMES, July 27, 2006, at A25 ("I would like to remove my name from the list of scientists who dispute global warming. I know my coauthors would as well.").
24. The global average temperature in 1899-1901 was 13.88°C (56.98°F), and in 1999-2001 it was 14.44°C (57.99°F). Lester R. Brown, Earth Policy Inst., Global Temperature Rising (2002), http://www.earth-policy.org/Indicators/indicator8.htm.
25. IPCC, SCIENTIFIC BASIS, supra note 4, at 4;
26. Mark Clayton, In Hot Pursuit of Polluters, CHRISTIAN SCI. MONITOR, Aug. 19, 2004, at 15 ("The global sea level has risen 4 to 8 inches over the past century.");
27. see also IPCC, CLIMATE CHANGE 2007, supra note 3, at 13 tbl.SPM-3 (projecting future sea level rise relative to 1980-1999 levels). The relative sea level incorporates all anthropogenic and natural causes of land elevation, including tectonic uplifting and land subsidence.
28. See NAT'L ASSESSMENT SYNTHESIS TEAM, U.S. GLOBAL CHANGE RESEARCH PROGRAM, CLIMATE CHANGE IMPACTS ON THE UNITED STATES: THE POTENTIAL CONSEQUENCES OF CLIMATE VARIABILITY AND CHANGE 80-81 (2000), available at http://www.usgcrp.gov/usgcrp/ Library/nationalassessment/overview.htm.
29. Michael Perry, Global Warming Devastates World's Coral Reefs, GLOBAL SITUATION REP., NOV. 26, 1998, http://www.gsreport.com/articles/art000023.html;
30. see also Leonard Post, Power Companies Feel the Heat: Eight States and NYC Sue Power Companies over Global Warming, NAT'L L.J., Aug. 2, 2004, at 4 (2004) (highlighting a lawsuit against power companies for causing global warming and, with it, the death of coral reefs). To put the situation in perspective, it is estimated that the global average temperature during the Ice Age was 5°C to 7°C colder than current temperatures.
31. Global Climate Change: Hearings Before the S. Comm. on Environment and Public Works, 105th Cong. 120 (1997) (statement of Stephen H. Schneider, Professor, Department of Biological Sciences, Stanford University), available at http://frwebgate.access.gpo.gov/cgibin/getdoc.cgi?dbname= 105_senate_hearings&docid=f:46585.pdf;
32. see also JOHN HOUGHTON, GLOBAL WARMING: THE COMPLETE BRIEFING 95 (2d ed. 1997) (explaining that there is only a "5 or 6°C change in global average temperature which occurs between the middle of an ice age and the warm period in between ice ages").
33. See ROBERT W. BUDDEMEIER ET AL., PEW CTR. ON GLOBAL CLIMATE CHANGE, CORAL REEFS & GLOBAL CLIMATE CHANGE: POTENTIAL CONTRIBUTIONS OF CLIMATE CHANGE TO STRESSES ON CORAL REEF ECOSYSTEMS 1-2, 15-17 (2004).
34. THE CORAL REEF ALLIANCE, CORAL REEFS & GLOBAL CLIMATE CHANGE: RISING TIDES, TEMPERATURES AND COSTS TO REEF COMMUNITIES (2003), available at http://www.icran.org/pdf/reefs-climatechange.pdf.
35. See, e.g., A.T. Strathdee et al., Climatic Severity and the Response to Temperature Elevation of Arctic Aphids, 1 GLOBAL CHANGE BIOLOGY 23 (1995) (studying the effect of temperature rise on aphid populations at different sites and concluding that the effect of warming temperatures is greater at colder sites).
36. IPCC, SCIENTIFIC BASIS, supra note 4, at 16 (noting that the relative sea level may rise three feet by the end of the century). With global sea level rise, small island developing states face significant and unique problems due to their inability to adapt to a rising sea level by relocating.
37. See U.N. FRAMEWORK CONVENTION ON CLIMATE CHANGE [UNFCCC], CLIMATE CHANGE: SMALL ISLAND DEVELOPING STATES (2005) (discussing the potential impacts of climate change on small island developing states).
38. See Conference of the Contracting Parties to the Convention on Wetlands (Ramsar, Iran), Valencia, Spain, Nov. 18-26, 2002, Climate Change and Wetlands: Impacts, Adaptation and Mitigation, Ramsar COP8 DOC 11, available at http://www.ramsar.org/cop8/cop8_doc_11_e.pdf;
39. IPCC, WORKING GROUP II, CLIMATE CHANGE 2001: IMPACTS, ADAPTATION & VULNERABILITY 34 (James J. McCarthy et al. eds., 2001) [hereinafter IPCC, IMPACTS].
40. IPCC, IMPACTS, supra note 19, at 3 (noting altitudinal and poleward shifts in animal migration patterns). Additionally, the journal Nature has reported that current GHG emissions levels are likely to result in the extinction of fifteen to thirty-seven percent of terrestrial species by 2050.
41. Chris Thomas et al., Extinction Risk from Climate Change, 427 NATURE 145, 145 (2004);
42. see also World Wildlife Fund, Asia-Pacific Partnership Sets World Up for Massive Global Warming (Jan. 12, 2006), http://www.panda.org/news_facts/ newsroom/news/index.cfm?uNewsID=56020 (noting the Nature study and urging the United States and Australia to ratify the Kyoto Protocol).
43. See Robert Lee Hotz, Wildfire Increase Linked to Climate, L.A. TIMES, July 7, 2006, at A1 ("[T]he average fire season has grown more than two months longer, while fires have become more frequent, longer-burning and harder to extinguish. They destroy 6.5 times more land than in the 1970s.");
44. Press Release, Scripps Inst. of Oceanography, Warming Climate Plays Large Role in Western U.S. Wildfires, Scripps-Led Study Shows (July 6, 2006), http://scrippsnews.ucsd.edu/article_detail.cfm?article_num=739 (describing a new study linking global warming with the dramatic increase of wildfires). Wildfires account for more than $1 billion in federal firefighting expenses annually, plus immeasurable property damages.
45. Hotz, supra.
46. See INT'L CLIMATE CHANGE TASK FORCE, MEETING THE CLIMATE CHALLENGE: RECOMMENDATIONS OF THE INTERNATIONAL CLIMATE CHANGE TASK FORCE 3 (2005) (expressing concern about the water shortages that would result from climate change).
47. See DAVID HUNTER ET AL., INTERNATIONAL ENVIRONMENTAL LAW AND POLICY 596 (2d ed. 2002) (noting that global warming affects droughts, floods, and heat waves);
48. INT'L SCI. STEERING COMM., AVOIDING DANGEROUS CLIMATE CHANGE 12-15 (2005) (including "dangerous weather events" in a discussion of the adverse impacts of climate change");
49. Pawa & Krass, supra note 11, at 424 (describing harmful consequences of the wildfires and intense precipitation caused by global warming);
50. see also Press Release, Scripps Institution of Oceanography, Global Warming Can Trigger Extreme Ocean, Climate Changes, Scripps-Led Study Reveals (Jan. 4, 2006), http://scrippsnews.ucsd.edu/article_detail.cfm? article_num-708 (linking global warming to "drastic climatological, biological and other important changes around the world"). Additionally, global warming has been linked to abrupt and severe climatic changes.
51. COMM. ON ABRUPT CLIMATE CHANGE, NAT'L RESEARCH COUNCIL, ABRUPT CLIMATE CHANGE: INEVITABLE SURPRISES 107-17 (2002);
52. see also RICHARD A. POSNER, CATASTROPHE: RISK AND RESPONSE 163 (2004) ("[A]brupt global warming is more likely to be catastrophic than gradual global warming because it would deny or curtail opportunities for adaptive responses, such as switching to heat-resistant agriculture or relocating population away from coastal regions.").
53. Although agricultural production levels globally may remain stable, local adaptability may vary greatly, resulting in significantly reduced output in certain localities. See HUNTER ET AL., supra note 23, at 596 (noting that agricultural productivity may decrease in poor localities from climate change).
54. Goldberg & Wagner, supra note 11, at 3-4. The melting of Arctic permafrost has destabilized areas of the Arctic, forcing some coastal communities in Alaska to relocate.
55. See SUSAN JOY HASSOL, IMPACTS OF A WARMING ARCTIC: ARCTIC CLIMATE IMPACT ASSESSMENT 19 (2004), available at http://amap.no/acia;
56. Grossman, supra note 11, at 15-16. The expense resulting from the relocations of just two coastal communities, Kivalina and Shishmaref, are expected to exceed fifteen million dollars.
57. DEBORAH L. WILLIAMS, ALASKA CONSERVATION SOLUTIONS, GLOBAL WARMING IN ALASKA: THE GREATEST THREAT 20 (2006), http://www.alaskaconservationsolutions.com/acs/images/stories/docs/ PowerPointTraining.pdf. These warming concerns have caused the Alyeska Pipeline Service Company to install additional supports for the Trans-Alaska Pipeline.
58. Timothy Egan, Alaska, No Longer So Frigid, Starts to Crack, Burn and Sag, N.Y. TIMES, June 16, 2002, at A1. In some areas of Alaska, the permafrost has warmed to within 1°C of thawing.
59. Ned Rozell, Interior Alaska and Siberia Permafrost Thawing Together, ALASKA SCI. F., Jan. 3, 2001, http://www.gi.alaska.edu/ScienceForum/ASF15/1523.html.
60. William D. Nordhaus, Reflections on the Economics of Climate Change, 7 J. ECON. PERSP. 11, 16-17 (1993) (noting that a 2.5°C to 3.0°C increase in global temperature will cause the global aggregate of gross national products to decrease approximately 1% to 2%).
61. These health impacts include increased instances of asthma, Pawa & Krass, supra note 11, at 423, heat-stroke and death, and increased outbreaks of insect and waterborne diseases that thrive in warmer temperatures.
62. see Jonathan A. Patz et al., Impact of Regional Climate Change on Human Health, 438 NATURE 310 (2005) (reviewing studies of projected health risks associated with future climate change);
63. WORLD HEALTH ORG. [WHO], CLIMATE CHANGE AND HUMAN HEALTH: RISKS AND RESPONSES: SUMMARY 7 (2003) (reporting that 2.4% of worldwide diarrhea cases are caused by global warming).
64. Throughout Europe, the impact of global warming on human health has been even more dramatic than in the United States, as approximately 35,000 individuals perished due to the August 2003 continent-wide heat wave. See Shaoni Bhattacharya, European Heatwave Caused 35,000 Deaths, NEW SCIENTIST, Oct. 10, 2003, http://www.newscientist.com/article.ns?id= dn4259. With 90% certainty, more than half of the heat wave suffered by Europe in 2003 was attributable to anthropogenic GHG emissions.
65. Peter A. Stott et al., Human Contribution to the European Heatwave of 2003, 432 NATURE 610, 612-13 (2004). Yet, if GHG emissions are not reduced, by 2040, on average every other summer will be warmer than 2003.
66. Id. at 613.
67. Globally, it is estimated that 150,000 deaths are related to global warming every year. Patz et al., supra, at 313;
68. see also Juliet Eilperin, Climate Shift Tied to 150,000 Fatalities, WASH. POST, NOV. 17, 2005, at A20 (noting that according to the WHO, the earth's warming climate contributes to more than 150,000 deaths and five million illnesses each year).
69. See, e.g., Massachussets v. EPA, 127 S. Ct. 1438, 1446 (2007) ("Calling global warming 'the most pressing environmental challenge of our time,' a group of States, local governments, and private organizations, alleged . . . that the Environmental Protection Agency . . . has abdicated its responsibility under the Clean Air Act to regulate the emissions of four greenhouse gases, including carbon dioxide." (footnotes omitted));
70. Patrick Parenteau, Anything Industry Wants: Environmental Policy Under Bush II, 14 DUKE ENVTL. L. & POL'Y F. 363, 365 (2004).
71. Peter Alsop, Flower Power, CALIFORNIA, Sept./Oct. 2006, at 34, 37 (quoting Berkeley scientist John Harte as saying "we're underestimating the magnitude of future warming"), available at http://www.alumni.berkeley.edu/calmag/200609/harte.asp.
72. U.N. Conference on Env't & Dev., Rio de Janeiro, Braz., June 3-14, 1992, Adoption of Agreements on Environment and Development: The Rio Declaration on Environment and Development, princ. 15, U.N. Doc. A/CONF.151/5/Rev.1 (June 13, 1992).
73. See UNFCCC, UNITED NATIONS FRAMEWORK CONVENTION ON CLIMATE CHANGE: THE FIRST TEN YEARS 10-13 (2004) [hereinafter UNFCCC, THE FIRST TEN YEARS], available at http://unfccc.int/resource/docs/publications/first_ten_years_en.pdf.
74. U.N. Framework Convention on Climate Change, May 9, 1992 [hereinafter UNFCCC Treaty], available at http://unfccc.int/resource/docs/convkp/ conveng.pdf.
75. UNFCCC, Status of Ratification (Nov. 22, 2006), http://unfccc.int/ essential_background/convention/status_of_ratification/items/2631.php.
76. UNFCCC Treaty, supra note 32, art. 4.2(b).
77. 2 have increased 5% since 1990).
78. See generally MATTHEW BRAMLEY, PEMBINA INST., THE CASE FOR KYOTO: THE FAILURE OF VOLUNTARY CORPORATE ACTION (2002), available at http://www.pembina.org/pdf/publications/ vcr_publication_101702.pdf (analyzing the failure of the voluntary emissions-reduction programs to reduce emissions in Canada and globally);
79. Mary Anne Sullivan, Voluntary Plans Will Not Cut Greenhouse Gas Emissions in the Electricity Sector, 6 SUSTAINABLE DEV. L. & POL'Y 47 (2006).
80. Emissions from the fourteen Annex I parties with economies in transition (EITs) decreased 39.6% (45.2% including land use, land-use change, and forestry considerations (LULUCF)) between 1990 and 2003. UNFCCC, Subsidiary Body for Implementation [SBI], National Greenhouse Gas Inventory for the Period Inventory Data for the Period 1990-2003 and Status of Reporting, ¶ 13, U.N. Doc. FCCC/SBI/2005/17 (Oct. 12, 2005) [hereinafter UNFCCC, National Greenhouse Gas Inventory], available at http://unfccc.int/resource/docs/ 2005/sbi/eng/17.pdf;
81. see infra note 43 (explaining what Annex I, Annex II, and non-Annex I parties are). Over the same period, the aggregate emissions of all Annex I parties, including emissions reductions from the EIT countries, decreased by 5.9% (6.5% including LULUCF) over the same period.
82. Id. Although UNFCCC did not have some relevant data, its calculations include extrapolations of other data received to present an estimation of total aggregate emissions, including emissions from nonreporting countries.
83. Id. at fig.2.
84. Changes in land use affect the ability of the natural environment to act as "carbon sinks." See IPCC, SPECIAL REPORT: LAND USE, IAND-USE CHANGE, AND FORESTRY 3-4 (Robert T. Watson et al. eds., 2000), Destruction of carbon sinks such as forests through land-use conversion releases carbon dioxide into the air, while the creation of more wooded area increases the carbon-absorptive capacity of the environment and reduces total emissions.
85. 2 emissions changes resulting from changes in land use, the United Nations has requested that countries report such emissions changes in recent years; the United States has been one of the largest sources of emissions resulting from the conversion of carbon sinks.
86. 2 emissions and removals from land use, land-use change, and forestry" from 1997-2003 for various countries, including the United States).
87. UNFCCC Conference of the Parties, Berlin, F.R.G., Mar. 28-Apr. 7, 1995, Report of the Conference of the Parties on Its First Session: Addendum: Part Two: Action Taken By the Conference of the Parties at Its First Session, at 4-6, U.N. Doc. FCCC/CP/1995/7/Add.14 (June 6, 1995), available at http://unfccc.int/cop4/resource/docs/cop1/07a01.pdf.
88. Kyoto Protocol to the U.N. Framework Convention on Climate Change, Dec. 10, 1997 [hereinafter Kyoto Protocol], available at http://unfccc.int/ resource/docs/convkp/kpeng.pdf.
89. For a discussion of the various liability rules proposed for the Kyoto Protocol, see UNFCCC, Subsidiary Body for Scientific & Technological Advice [SBSTA] & SBI, Mechanisms Pursuant to Articles 6, 12 and 17 of the Kyoto Protocol: Text for Further Negotiation on Principles, Modalities, Rules and Guidelines, ¶ 357, U.N. Doc. FCCC/SB/2000/3, (May 11, 2000), available at http://unfccc.int/resource/docs/2000/sb/03.pdf.
90. 2 equivalent in 2003.
91. 2 equivalent in 2003.
92. id. at tbl.II-11;
93. 2 equivalent in 1994. UNFCCC, KEY GHG DATA, supra, at 14;
94. UNFCCC, National Greenhouse Gas Inventory, supra note 35, at 17 tbl.7;
95. UNFCCC, SBI, Sixth Compilation and Synthesis of Initial National Communications from Parties Not Included in Annex I to the Convention: Addendum: Inventories of Anthropogenic Emissions by Sources and Removals by Sinks of Greenhouse Gases, ¶ 23, U.N. Doc. FCCC/SBI/2005/18/Add.2 (Oct. 25, 2005), available at http://unfccc.int/resource/docs/2005/sbi/eng/18a02. pdf.
96. The Kyoto Protocol's compliance scheme involves facilitating compliance through a "multilateral consultative process," as endorsed by Article 16, and ensuring enforcement in instances of noncompliance, as authorized by Article 18. Kyoto Protocol, supra note 37, arts. 16, 18. To achieve these twin goals, a Compliance Committee was established in 2006, consisting of a Facultative Branch and an Enforcement Branch. Press Release, UNFCCC, Groundbreaking Kyoto Protocol Compliance System Launched (Mar. 3, 2006), available at http://unfccc.int/resource/docs/2005/sbi/eng/18a02.pdf;
97. see also UNFCCC, THE FIRST TEN YEARS, supra note 31, at 86 box 8.2 (describing plans for the Compliance Committee before its implementation). The Protocol itself, however, does not impose financial penalties for failing to comply.
98. Cf. Joshua Busby, Climate Change and Collective Action: Troubles in the Transition to a Post-Oil Economy, 2 ST. ANTHONY'S INT'L REV. 35, 44 (2006) (explaining that, because penalizing defectors is costly, enforcement "itself is a public goods problem"). Rather, it imposes a range of potential sanctions, including making noncompliant parties ineligible to participate in the Joint Implementation (JI) program or in emissions trading.
99. see infra notes 47-48, during the next commitment period, as well as requiring such defaulting parties to reduce their emissions further to compensate for the earlier non-compliance.
100. See DONALD M. GOLDBERG ET AL., CTR. FOR INT'L ENVTL. LAW & EURONATURA, BUILDING A COMPLIANCE REGIME UNDER THE KYOTO PROTOCOL 21-26, 29-33 (1998), available at http://ciel.org/ Publications/buildingacomplianceregimeunderKP.pdf. The effectiveness of this enforcement mechanism is a matter of significant dispute.
101. Kyoto Protocol, supra note 37, art. 17.
102. IPCC's Third Assessment Report, published in 2001, concluded that the measures taken to reduce GHGs to the levels prescribed by the UNFCCC would reduce developed countries' GDPs between 0.1% and 2.0% by 2010. See UNFCCC, THE FIRST TEN YEARS, supra note 31, at 20.
103. Annex I parties are developed countries, while Annex II parties, which by definition are also Annex I parties, are highly developed countries. Non-Annex I parties are developing countries. Under the Protocol, Annex I parties must reduce their GHG emissions to, on average, 5% below their 1990 emissions levels by 2012. UNFCCC, THE FIRST TEN YEARS, supra note 31, at 84-85. If the United States ratifies the Protocol, it will be required to cut its emissions by 7%.
104. Id. at 84. However, the United States has proclaimed its intention not to ratify the Protocol.
105. See Political Interference with Science: Global Warming, Part II: Hearing Before the H. Comm. on Oversight and Government Reform, 110th Cong. (2007) (statement of James L. Connaughton, Chairman, White House Council on Environmental Quality), available at http://oversight.house.gov/ documents/20070319130732-64027.pdf;
106. Stuart Eizenstat, Stick With Kyoto: A Sound Start on Global Warming, FOREIGN AFF., May/June 1998, at 119, 121, available at http://www.foreignaffairs.org/19980501faresponse1395/stuart- eizenstat/stick-with-kyoto-a-sound-start-on-global-warming.html (explaining that the United States would not ratify the Protocol unless developing countries also participate). The Protocol does not establish binding emissions-reduction targets for non-Annex I parties (developing countries). This differential treatment was a matter of significant dispute and was one of the reasons articulated by the United States for its decision to not ratify the Protocol. Negotiations are currently underway to establish emissions-reduction targets for the second commitment period under the Protocol. As with the first commitment period, the imposition of binding emissions-reduction targets for non-Annex I parties is currently a point of contention.
107. See S. Res. 98, 105th Cong. (1997) (enacted) (noting that the United States would not ratify any emissions-reduction agreement unless binding emissions targets were imposed on developing countries as well).
108. See generally Frank Jotzo, Developing Countries and the Future of the Kyoto Protocol (Australian Nat'l Univ., Econ. & Env't Network Working Paper No. EEN0406, 2004), available at http://een.anu.edu.au/ download_files/een0406.pdf.
109. The International Energy Agency (IEA) has predicted that energy-related carbon emissions will increase by 70% over current levels by 2030, with increases coming largely from developing countries. IEA, WORLD ENERGY OUTLOOK 2002 30-31 (2001), available at http://www.iea.org/textbase/nppdf/free/2000/weo2002.pdf. It is expected, therefore, that non-Annex I countries will soon emit GHGs at levels necessitating regulation. Whether parties to the Protocol will be able to include binding emissions targets for non-Annex I parties in future commitment periods remains to be seen. The recent Nairobi negotiations did not resolve the issue, but did focus on whether developing nations, such as China and India, should agree to mandatory emissions targets under the Protocol.
110. See Dean Scott, Post-2012 Emissions Limits, Adaptation To Be Focuses of U.N. Climate Conference, Daily Env't Rep. (BNA) No. 213, at A-11 (Nov. 3, 2006).
111. Kyoto Protocol, supra note 37, art. 3.7.
112. Id. art. 17.
113. DONALD M. GOLDBERG ET AL., CTR. FOR INT'L ENVTL. L. & EURONATURA, RESPONSIBILITY FOR NON-COMPLIANCE UNDER THE KYOTO PROTOCOL'S MECHANISMS FOR COOPERATIVE IMPLEMENTATION 15 (1998), available at http://www.ciel.org/ Publications/ResponsibilityforNCundertheKP.pdf.
114. Kyoto Protocol, supra note 37, arts. 6, 12, 17. While the JI and CDM programs are not technically emissions trading programs, they contribute to the GHG emissions trading regime complex and are therefore analyzed as part of the regime complex.
115. An analysis by the European Commission has established that utilization of the JI and CDM trading programs will cut the cost of compliance with the Protocol nearly in half in 2010. See Joseph A. Kruger & William A. Pizer, Greenhouse Gas Trading in Europe: The New Grand Experiment, ENVIRONMENT, Oct. 2004, at 8, 17;
116. Jonathan Baert Wiener, Policy Design for International Greenhouse Gas Control, in CLIMATE CHANGE ECONOMICS AND POLICY 205, 208 (Michael A. Toman ed., 2001).
117. UNFCCC, THE FIRST TEN YEARS, supra note 31, at 85 ("The Kyoto Protocol will only be effective if the parties comply with their commitments, have the means to verify compliance and also use reliable emissions data."). While it has one of the most developed compliance regimes in international law, the regime is designed to facilitate compliance through nonpunitive means and without financial penalty.
118. Id. at 85-86 & box 8.2. However, as a penalty for failing to comply with the implementation schedule of the Kyoto Protocol, parties may become ineligible to trade, UNFCC Conference of the Parties, Marrakesh, Morocco, Oct. 29-Nov. 10, 2001.
119. Report of the Conference of the Parties on Its Seventh Session: Addendum: Part Two: Action Taken by the Conference of the Parties: Volume III, at 76, U.N. Doc. FCCC/CP/2001/13/Add.3 (Jan. 21, 2002) [hereinafter Marrakesh Accords Volume III], or to engage in projects under JI.
120. Kyoto Protocol, supra note 37, art. 6.1 (c);
121. see also GOLDBERG, supra note 40, at 30 n.62. Parties also may be ineligible to participate in such programs because of procedural default (e.g., not filing emissions inventory reports) during the commitment period.
122. Id. at 75-76. 50 Highly developed countries are expected to have higher marginal abatement costs, not only because they have greater sunk costs in older technology, but also because they often have environmental protections that reduce emissions to a greater extent than those in EITs.
123. See CHRIS ROLFE & LINDA NOWLAN, W. COAST ENVTL. LAW, NEGOTIATING THE CLIMATE AWAY: REPORT CARD ON ENVIRONMENTAL INTEGRITY OF OECD NATIONS' CLIMATE SUMMIT NEGOTIATION POSITIONS 16 (2000), available at http://www.wcel/org/wcelpub/2000/13244.pdf (explaining the "hot air" loophole).
124. Since the amount of "hot air" available for sale through tradable AAUs depends upon emissions inventories, EITs have an incentive to underreport current emissions, or to overreport the amount of "hot air" they possess. Given that EITs often lack the systems and capacity to undertake highly accurate GHG emissions inventories, there is ample room for
125. Werner Güth et al., "Buying a Pig in a Poke": An Experimental Study of Unconditional Veto Power (2005) (unpublished manuscript), available at https://people.econ.mpg.de/levati/YesNoGame.pdf (concluding that, in a "pig in a poke" bargaining game where transactions involve limited transparency, players seek to act unfairly).
126. Marrakesh Accords Volume III, supra note 49, at 76.
127. Obtaining AAUs, ERUs, or CERs adjusts a party's assigned emissions allowance; it does not affect the emissions reported. Kyoto Protocol, supra note 37, art. 3.10-.12.
128. OECD Env't Directorate & IEA, An Assessment of Liability Rules for International GHG Emissions Trading, at 21, OECD Doc. COM/ENV/EPOC/IEA/ SLT(2000)6 (2000) (prepared by Richard Baron) [hereinafter OECD, Liability Assessment].
129. See, e.g., KEVIN BAUMERT & JONATHAN PERSHING, PEW CTR. ON GLOBAL CLIMATE CHANGE, CLIMATE DATA: INSIGHTS AND OBSERVATIONS 19 (2004), available at http://www.pewclimate.org/docUploads/Climate%20Data%20new.pdf. Indeed, there is the potential for party-firm trades as well as party-party trades that involve a number of concessions, only one of which involves trading AAUs.
130. See OECD Env't Directorate & IEA, Market Power and Market Access in International GHG Emissions Trading, at 9, OECD Doc. COM/ENV/EPOC/IEA/SLT(2000)5 (2000) (prepared by Richard Baron). However, if dominant buyers develop monopsony power, the lower AAU price that results would make the purchase of AAUs worthwhile for more parties and firms, thereby counteracting the monopsony effect.
131. Id. at 7-8. While concerns about monopoly pricing exist, they should be counteracted largely by the elasticity of demand for AAUs in a weak international regime.
132. Id. at 7.
133. One danger of overselling is that it minimizes the need to implement emissions-reducing technologies or modify consumption patterns and can lead to a degradation of the environment. OECD, Liability Assessment, supra note 56, at 21-22.
134. DAVID G. VICTOR, THE COLLAPSE OF THE KYOTO PROTOCOL AND THE STRUGGLE TO SLOW GLOBAL WARMING 18 (2001).
135. See generally OECD, Liability Assessment, supra note 56, at 10-12.
136. Id. at 21;
137. see also Erik Haites, Harmonisation Between National and International Tradeable Permit Schemes, in GREENHOUSE GAS EMISSIONS TRADING AND PROJECT-BASED MECHANISMS 105, 109-10 (OECD ed., 2004) [hereinafter GHG EMISSIONS TRADING].
138. This concern is especially pertinent to EITs because their emissions targets likely will be adjusted for future commitment periods to reflect their current emissions levels, eliminating their ability to sell "hot air." EITs may still have lower marginal abatement costs and, therefore, still be net seller parties in future commitment periods, but their monopoly over surplus AAUs will be diminished once the supply of "hot air" is removed from the trading pool.
139. VICTOR, supra note 59, at 70.
140. "[S]anctioning authority is rarely granted by treaty, rarely used when granted, and likely to be ineffective when used." ABRAM CHAYES & ANTONIA CHAYES, THE NEW SOVEREIGNTY: COMPLIANCE WITH I NTERNATIONAL REGULATORY AGREEMENTS 32-33 (1995).
141. UNFCCC Conference of the Parties, Marrakesh, Morocco, Oct. 29-Nov. 10, 2001, Report of the Conference of the Parties on Its Seventh Session: Addendum: Part Two: Action Taken by the Conference of the Parties: Volume II, at 54, U.N. Doc. FCCC/CP/2001/13/Add.2 (Jan. 21, 2002);
142. see also OECD, Liability Assessment, supra note 56, at 14.
143. CIEL proposes a CPR scheme that establishes surpluses on an annual basis, but adjusted based on cumulative emissions. See CTR. FOR INT'L ENVTL. LAW, HYBRID LIABILITY REVISITED: BRIDGING THE DIVIDE BETWEEN SELLER AND BUYER LIABILITY 4-5 (2000), available at http://www.ciel.org/publications/HybridLiabilityCop6.pdf.
144. See, e.g., id. at 6-8.
145. This is a modified version of the traffic-light liability scheme designed to address the issues of time lag related to emissions inventories and the domino effect of a pure buyer-liability system. CTR. FOR INT'L ENVTL. LAW, supra note 66, at 4. The system does not truly address the time-lag issue, however, because if the verified emissions inventory provides the basis for a CPR determination, a party can use the time delay before the next emissions-inventory verification to oversell AAUs.
146. See Peter Bohm, Improving Cost-Effectiveness and Facilitating Participation of Developing Countries in International Emissions Trading 19 (Les séminaires de l'Iddri No. 5, 2003) (on file with author).
147. For trades occurring within the CPR, the same policy arguments apply as those under a pure buyer-liability regime. See GOLDBERG ET AL., supra note 46, at 9-12.
148. See Erik Haites & Fanny Missfeldt, Limiting Overselling in International Emissions Trading II: Analysis of a Commitment Period Reserve at National and Global Level (UNEP Collaborating Ctr. on Energy & Env't, Working Paper No. 11, 2002) [hereinafter Haites & Missfeldt, Limiting Overselling II];
149. Erik Haites & Fanny Missfeldt, Limiting Overselling in International Emissions Trading I: Cost and Environmental Impacts of Alternative Proposals (UNEP Collaborating Ctr. on Energy & Env't Working Paper No. 10, 2000) [hereinafter Haites & Missfeldt, Limiting Overselling I]. The Haites and Missfeldt research model, however, due to the need for simplicity, could not account for subtleties and combination effects of various proposals.
150. See Haites & Missfeldt, Limiting Overselling II, supra, at 3-4, Nevertheless, the model provides core guidance for policymakers designing liability schemes.
151. While reducing the number of tradable allowances may affect the liquidity of the market, see Sonja Peterson, Monitoring, Accounting and Enforcement in Emissions Trading Regimes, in GHG EMISSIONS TRADING, supra note 61, at 189, 200;
152. OECD, Liability Assessment, supra note 56, at 32-33, Haites and Missfeldt's research suggests the impact on liquidity will be insignificant.
153. See Erik Haites & Fanny Missfeldt, Liquidity Implications of a Commitment Period Reserve at National and Global Levels, 26 ENERGY ECON. 845 (2004).
154. Bohm, supra note 68, at 19. Delayed reductions will reduce overall emissions in later years, enabling greater trading at that time, but in the years prior to the reductions' achievement, no such trading would be allowed.
155. Political pressure may push traders to trade only with compliant parties. This pressure seems unlikely given the complexity of the regime and how removed the global citizenry is from such trades.
156. See Busby, supra note 40, at 44.
157. See infra Part III.B.
158. Kyoto Protocol, supra note 37, art. 12. The CDM program originated from a Brazilian proposal to incorporate developing countries into the trading regime.
159. See Jacob Werksman, The Clean Development Mechanism: Unwrapping the "Kyoto Surprise", 7 REV. EUR. COMMUNITY & INT'L ENVTL. L. 147, 151 (1998).
160. Kyoto Protocol, supra note 37, art. 12;
161. see also KEVIN A. BAUMERT & ELENA PETKOVA, HOW WILL THE CLEAN DEVELOPMENT MECHANISM ENSURE TRANSPARENCY, PUBLIC ENGAGEMENT, AND ACCOUNTABILITY? 1 (World Resources Inst. Climate Notes, 2000), available at http://pdf.wri.org/pp-note.pdf (suggesting ways to "promote participation within the CDM");
162. Stewart et al., supra note 7, at 163, 202-05 (providing an overview of the CDM program).
163. Kyoto Protocol, supra note 37, art. 12.2 ("The purpose of the [CDM] shall be to assist parties not included in Annex I in achieving sustainable development and in contributing to the ultimate objective of the Convention, and to assist parties included in Annex I in achieving compliance with their quantified emission limitation and reduction commitments under Article 3."). Accordingly, the CDM requires that CDM projects ensure "real, measurable, and long-term benefits related to the mitigation of climate change" and promote "sustainable development."
164. Id. art. 12.2, .5(b);
165. see also U.N. Ad Hoc Working Group on CDM, The Clean Development Mechanism: Building International Public-Private Partnerships Under the Kyoto Protocol: Technical, Financial and Institutional Issues, U.N. Doc. UNCTAD/GDS/GFSB/Misc.7 (2000) (prepared by Richard Stewart);
166. Stewart et al., supra note 7, at 204-05 (discussing different models of CDM project development and investment). The CDM does not require "financial additionality" as required for projects occurring under JI.
167. Axel P. Gosseries, The Legal Architecture of Joint Implementation: What Do We Learn from the Pilot Phase?, 7 N.Y.U. ENVTL. L.J. 49, 78 (1999). This is an odd outcome considering that most overseas deployment assistance (ODA) flows from Annex I parties to non-Annex I parties rather than between and among Annex I parties. A simple shift in resources from ODA to CDM investments can therefore result in significant CERs.
168. Richard Sandor, How I See It: The CDM: Opportunities and Challenges, ENVTL. FIN., Apr. 2000, at 15, 15. In addition, there is often uncertainty when the ability of CDM projects to generate credits and the value of those credits are uncertain.
169. See OECD Env't Directorate & IEA, Taking Stock of Progress Under the Clean Development Mechanism, at 34, OECD Doc. COM/ENV/EPOC/IEA/ SLT(2004)4/FINAL (June 15, 2004) (prepared by Jane Ellis et al.).
170. While other liability issues are of significant concern for the CDM, trading, and JI regimes-including the liability of third-party certifying bodies, independent monitors, financing entities, and parties-these issues are beyond the scope of this Article, which seeks to identify the dangers of overlapping emissions trading regimes with varying liability rules. For instance, while anyone might propose a CDM project that could satisfy the CDM Executive Board, see UNFCCC, THE FIRST TEN YEARS, supra note 31, at 86, questions of financing are a bit trickier. Commentators have identified multiple ways in which CDM projects might be financed. The three most likely are (1) host country identification and financing, with subsequent CER sales to Annex I parties; (2) open market negotiation, whereby private and/or government entities enter into bilateral contracts for CDM projects; and (3) portfolio investments akin to a mutual fund model, whereby CDM project investment brokers analyze and recommend a portfolio of CDM projects for investors.
171. See Stewart et al., supra note 7, at 204-05 (evaluating the pros and cons of each model). Each financing method raises different liability issues for parties, firms, and third parties.
172. Id. Similarly, this Article does not discuss the liability questions raised when a party hosting a CDM or JI project has understated its "hot air," thereby affecting the ability of an investment to meet the CDM or JI additionality requirement.
173. See, e.g., Stewart et al., supra note 7, at 204 (explaining a market negotiation model to create contractual obligations between parties).
174. See OECD, Liability Assessment, supra note 56, at 15 (noting the popularity of ex post certification). As discussed below, however, the responsibilities of parties to the Protocol may still raise significant liability questions in an ex post certification system.
175. See infra Part IV.
176. See, e.g., SUZI KERR, ENFORCING COMPLIANCE: THE ALLOCATION OF LIABILITY IN INTERNATIONAL GHG EMISSIONS TRADING AND THE CLEAN DEVELOPMENT MECHANISM 9-10 (RFF Climate Issue Brief No. 15, 1998).
177. UNFCCC Treaty, supra note 32, art. 3.1. Given the UNFCCCs use of relative emissions reductions based upon prior emissions levels, determining binding emissions targets for non-Annex I nations might very well inhibit their economic development or otherwise be too speculative to have much meaning.
178. See Paul Baer et al., Equity and Greenhouse Gas Responsibility, 289 SCIENCE 2287, 2287 (2000) (arguing that without a fair allocation scheme that will not impede their development, developing countries will not be able to restrict future emissions). This equity concern has caused some commentators to call for an equal right to the atmosphere and a system of global per capita emissions limitations.
179. Id. While normatively this may be a superior allocation scheme, it has been rejected by the Kyoto Protocol and does not seem workable, given the current international political climate.
180. For discussions of the CBDR principle, see generally Paul G. Harris, Common but Differentiated Responsibility: The Kyoto Protocol and United States Policy, 7 N.Y.U. ENVTL. L.J. 27 (1999);
181. Jarrod Hepburn & Imran Ahmad, The Principle of Common but Differentiated Responsibilities (CISDL Legal Working Paper, 2005).
182. UNFCCC Treaty, supra note 32, art. 4.5 ("The developed country Parties . . . shall take all practicable steps to promote, facilitate and finance, as appropriate, the transfer of, or access to, environmentally sound technologies and know-how to other parties, particularly developing country parties, to enable them to implement the provisions of the Convention.").
183. Id.
184. Some have called for the use of contract law to impose liability on the non-Annex I party in the event of a reversal or CDM project failure. See, e.g., OECD, Liability Assessment, supra note 56, at 15;
185. Stewart et al., supra note 7, at 204. This Article suggests that while this is possible, it is unnecessary. Clarifying the existing framework, however, will provide all parties with a better understanding of their relative risks in any bargaining that might occur under a contract. But even if contract law is used to impose liability on the non-Annex I party for a failed CDM project, the Annex I party is still ultimately responsible under the Protocol. Certainly, a contract provision that requires a non-Annex I party to reforest a carbon sink in the event of a reversal or a forest fire would go a long way to ensure the predicted CERs are achieved. Ultimately, however, the only action an Annex I party might have against a non-Annex I party for a failed CDM project is a breach of contract action. Even if victorious, the Annex I party will be deemed noncompliant with its obligations under the Protocol if it relied upon achieving the predicted CERs to achieve compliance.
186. For ease of discussion, the discussion pertaining to buyer liability will primarily relate to trading allowances.
187. See CTR. FOR INT'L ENVTL. LAW, supra note 66, at 3 (noting that under a buyerliability rule, both parties care about compliance).
188. See VICTOR, supra note 59, at 71 (assessing the transaction costs that accompany buyer liability).
189. OECD, Liability Assessment, supra note 56, at 23 & app, 1.
190. Id. at 12-13;
191. VICTOR, supra note 59, at 69 (noting that a buyer-liability rule uses market mechanisms to spur project reliability within the CDM);
192. Timothy N. Cason, Buyer Liability and Voluntary Inspections in International Greenhouse Gas Emissions Trading: A Laboratory Study, 25 ENVTL. & RESOURCE ECON. 101, 102 (2003) (describing the purpose and benefits of a buyer-liability rule);
193. Henrik Malvik & Hege Westskog, The Kyoto Mechanisms and the Quest for Compliance: Unresolved Issues and Potential Pitfalls 13 (CICERO Working Paper 2001:3, 2001). Haites and Missfeldt suggest that a buyer-liability rule would result in full compliance, but would also result in 20% higher costs than a voluntary full compliance scenario (as compared to a much lower expected increase under a commitment period reserve scheme).
194. See Haites & Missfeldt, Limiting Overselling II, supra note 70, at 34-40. These costs were in part determined, however, based upon the model's formulation, which annualized the buying party's compliance. The model therefore assumed that compliance could only be achieved through the use of CERs and ERUs in all but the last year of the commitment period, since period AAUs do not become valid until a seller party demonstrates compliance.
195. Id. at 60. This model, however, does not consider a buyer party's total compliance at the end of the commitment period under a pure trading scenario, so the true costs of a buyer-liability scheme for Article 17 trading is unclear.
196. VICTOR, supra note 59, at 72.
197. Kyoto Protocol, supra note 37, art. 6.
198. UNFCCC Treaty, supra note 32, art. 3.3;
199. see Roebijn Heintz, Joint Implementation in Discussion, in JOINT IMPLEMENTATION TO CURB CLIMATE CHANGE 181, 181 (Onno Kuik et al. eds., 1994) (highlighting JI's ability to allow countries to undertake costefficient measures to reduce global warming).
200. Kyoto Protocol, supra note 37, art. 6.1(b);
201. UNFCCC Treaty, supra note 32, art. 4.2(a).
202. For an overview of JI, see Gosseries, supra note 78, at 49. This requirement does not necessarily exclude financially viable projects, as it is possible for there to be a financially viable project that faces administrative or other hurdles to implementation that cannnot be overcome without the intervention of the investing Annex I party.
203. See id. at 71.
204. There are a number of reasons why EITs are the primary market for JI projects. EITs have fewer sunk costs in the energy sector and are less reliant on fossil fuel technologies. Therefore, they can incorporate emissions-reducing technologies at a lower cost dian developed countries. See supra note 50. Further, the cost of exporting emissions-reducing technologies to EITs may be lower than exporting the same technologies to other parties since export to EITs is less likely to result in future competition in the export market for those technologies.
205. See Env't Bus. Austl., Deep Cuts (in Greenhouse Gas Emissions) and Quantum Leaps (in Renewable and Sustainable Energy): Submission to the MRET Review Committee 5 (May 5, 2003), available at http://www.mretreview.gov. au/pubs/mret-submission88.pdf (noting that Australia faces export competition of renewable technologies from non-EIT European countries) .
206. While these incentives are counteracted slightly by the incentive to overreport the amount of "hot air" for purposes of trading emissions credits under Article 17, it is difficult to determine how these incentives will play out in terms of proper reporting among EITs.
207. UNFCCC, THE FIRST TEN YEARS, supra note 31, at 88.
208. Countries can also opt for such international supervision. Those that do so are evaluated under Track 2. Id.
209. Id. 102 Further, the experience that EITs had with JI projects in the years leading up to the Protocol's effective date should serve to lessen the likelihood of errant calculations.
210. See id. at 89.
211. Article 3 is designed to address liability under JI, but it does not distinguish liability mechanisms applied to ERUs earned dirough JI projects and AAUs traded under Article 17.
212. Kyoto Protocol, supra note 37, art 6.4.
213. See OECD, Liability Assessment, supra note 56, at 26;,
214. OECD Env't Directorate, International Emissions Trading Under the Kyoto Protocol, at 23, OECD Doc. ENV/EPOC(99)18.FINAL (May 28, 1999) (prepared by Fiona Mullins) [hereinafter OECD, International Emissions Trading] (examining the possible hybrid liability approach for the JI program suggested by Article 6.4);
215. Michael Grubb, International Emissions Trading Under the Kyoto Protocol: Core Issues in Implementation, 7 REV. EUR. COMMUNITY & INT'L ENVTL. L. 140, 141 (1998) (explaining the costs and benefits of a shared liability rule).
216. VICTOR, supra note 59, at 141.
217. OECD, Liability Assessment, supra note 56, at 26.
218. For a discussion of what compliance issues might trigger a yellow or red light, see id. at 27-28;
219. GOLDBERG ET AL., supranote 40, at 16.
220. Kyoto Protocol, supra note 37, art. 6.4;
221. see also GOLDBERG ET AL., supra note 40, at 16 (noting that buyers cannot redeem allowances during a "yellow-light" period).
222. See OECD, Liability Assessment, supra note 56, at 15 ("[A] buyer may not use acquired ERUs if a compliance problem is identified under JI, suggesting a form of buyer liability.");
223. GOLDBERG ET AL., supra note 46, at 2 (noting that trading during a "yellow-light" period entails more risk for buyers).
224. This liability scheme is highly vulnerable to game playing by parties during the time lag between verifications of emissions inventories if ERUs or AAUs obtained during a green-light phase are instead treated under a buyer-liability rule. In such a situation, a party could take advantage of the verification time lag to oversell AAUs or induce JI investments. See CTR. FOR INT'L ENVTL. LAW, supra note 66, at 4, 6-8.
225. See Haites & Missfeldt, Limiting Overselling I, supra note 70, at 65-66.
226. See Tom Tietenberg, Tradable Permits in Principle and Practice, 14 PENN ST. ENVTL. L. REV. 251, 251-52 (2006) (noting that the Kyoto Protocol has spawned other trading regimes, such as the European Union's cap-and-trade program for GHGs);
227. see also UNFCCC, THE FIRST TEN YEARS, supra note 31, at 92 (describing the European Union's cap-and-trade program and a series of domestic emissions trading regimes). Although a variety of national regimes have sprouted up to implement the Kyoto Protocol, including Canada, Denmark, Sweden, Australia, and Japan, an analysis of those regimes is beyond the scope of this Article. Several authors have analyzed the issues of interlinking purely domestic emissions trading regimes with the Kyoto Protocol.
228. See, e.g., OECD Env't Directorate & IEA, Exploring Options for "Sectoral Crediting Mechanisms", OECD Doc. COM/ENV/EPOC/IEA/SLT(2005)1 (2005) (prepared by Martina Bosi & Jane Ellis) (discussing transectoral trade agreements);
229. YONG GUN KIM & ERIK F. HAITES, KOREA ENVT. INST., GREENHOUSE GAS EMISSIONS TRADING SCHEMES: RECENT DEVELOPMENT AND POLICY RECOMMENDATIONS FOR KOREA 6-7 (2005).(same). However, any conflict between such national regimes and the Protocol would not affect a party's obligations under the Protocol and would not involve JI, CDM, or Article 17 trading, unless cross-country linkages are established. This Article leaves a fuller discussion of the impacts of linking domestic emissions trading regimes to the Protocol for another day.
230. For purposes of this Article, the term "regional" refers to trading regimes with multiple sovereign entities that could be parties to the Kyoto Protocol. It therefore does not relate to regional programs located wholly within a single national jurisdiction, such as the Regional Greenhouse Gas Initiative, which was established to promote GHG trading among northeastern states in the United States.
231. See Karen J. Alter & Sophie Meunier, Nested and Overlapping Regimes in the Transatlantic Banana Trade Dispute, 13 J. EUR. PUB. POL'Y362, 363 (2006) ("When institutions are nested... conflicting policies of the subsumed regime constitute a violation of the more encompassing institution.").
232. See Kruger & Pizer, supra note 48, at 8.
233. Id. at 8, 10;
234. Peter Zapfel, The EU Emissions Trading Scheme, Presentation at the OECD Global Forum on Sustainable Development: Emissions Trading 5 (Mar. 18, 2003), available at http://www.oecd.org/dataoecd/9/39/2790139.pdf.
235. See Kruger & Pizer, supra note 48, at 10.
236. See Communication from the Commission to the Council, the European Parliament, the European Economic and Social Committee and the Committee of the Regions: Building a Global Carbon Market - Report Pursuant to Article 30 of Directive 2003/87/EC, at 7, 11-12, COM (2006) 676 final (Nov. 13, 2006) [hereinafter Commission Report, Building a Global Carbon Market].
237. See Commission Report, National Allocation Plan Progress Table - 8 (Mar. 2004), available at http://europa.eu.int/comm/environment/climat/ pdf/nap_progress.pdf (totaling the number of installations detailed for each member country).
238. See UNFCCC, THE FIRST TEN YEARS, supra note 31, at 92 box 8.4.
239. See Kruger & Pizer, supra note 48, at 15 tbl.1, for a discussion of the size of the EU ETS trading regime as compared to trading regimes within the United States.
240. See UNFCCC, THE FIRST TEN YEARS, supra note 31, at 92 box 8.4.
241. This GHG emissions trading regime complex might also be considered part of an energy regime complex. See David G. Victor et al., The Global Energy Regime 35-37 (Jan. 16, 2006) (unpublished manuscript, on file with author).
242. The EU ETS is a nested regime because it is subsumed by Kyoto, yet no bubble agreement exists for the EU with respect to the Kyoto Protocol under Article 4.1. A bubble agreement exists when parties to the Kyoto Protocol agree to fulfill jointly their obligations under the Protocol. See Kyoto Protocol, supra note 37, art. 4.1;
243. OECD, Liability Assessment, supra note 56, at 14-15. Under such an agreement, if the parties fail "to achieve their total combined level of emissions reductions," each party remains "responsible for its own level of emissions set out in the agreement." Kyoto Protocol, supra note 37, art. 4.5. Under such bubble agreements, issuer liability applies to trades that cause the bubble to be noncompliant.
244. See OECD, Liability Assessment, supra note 56, at 15.
245. Because no bubble agreement exists, each EU ETS member that is a signatory to the Kyoto Protocol has obligations under both the EU ETS and the Protocol and must decide which obligation to follow when the rules conflict and no clear resolution of the conflicting rules exists. This inherent nesting of EU ETS policies is sharply criticized by Alter and Meunier, supra note 114, at 378. But see Memorandum from Michael Oppenheimer & Annie Petsonk to Sophie Meunier, Linked Regimes To Solve the Timing Problem for Global Warming 5-6 (2006) (on file with author) (arguing that the possibility of nested agreements "can be a powerful force for encouraging the participation of sovereign nations in environmental protection regimes"). If a bubble agreement exists for a region, then the regional elemental trading regime would be analogous to a national trading system with external liability hooks for noncompliance. Such regimes are beyond the purview of this Article.
246. See KIM & HAITES, supra note 112, at 17 tbl.2-2, 35.
247. See Kruger & Pizer, supra note 48, at 12.
248. See KIM & HAITES, supra note 112, at 53.
249. See Kruger & Pizer, supra note 48, at 16 (describing the EU ETS's structure).
250. Haites, supra note 61, at 111 n.25.
251. Id. at 112.
252. The EU ETS only requires that no more than ten percent of emissions allowances be auctioned, beginning on January 1, 2008. Council Directive 2003/87/EC, art. 10, 2003 O.J. 12751; PEW CTR. ON GLOBAL CLIMATE CHANGE, THE EUROPEAN UNION EMISSIONS TRADING SCHEME (EU-ETS): INSIGHTS AND OPPORTUNITIES 7, available at http://www.pewclimate.org/docUploads/EU%2DETS%20White%20Paper%2Epdf (last visited May 1, 2007).
253. See Council Directive 2003/87/EC, supra note 131, art. 12.3;
254. Commission Report on EU Action Against Climate Change: EU Emissions Trading - An Open Scheme Promoting Global Innovation, at 12 (Sept. 2005), available at http://ec.europa.eu/environment/climat/pdf/ emission_trading2_en.pdf; PEW CTR. ON GLOBAL CLIMATE CHANGE, supra note 131, at 7.
255. Commission Report on EU Action Against Climate Change, supra note 132, at 12.
256. OECD, Liability Assessment, supra note 56, at 33-34.
257. 2 allowances that may be obtained from other parties to the Kyoto Protocol.
258. 2 emissions allowances before emissions inventories were submitted for 2005. See Peterson, supra note 71, at 4. The EU ETS can handle the time lag issue either by pushing trades of unverified surplus into the futures market or by permitting such trades based upon the latest available verified emissions inventory. As expected, futures trading operates under a buyer-liability rule. One benefit of the surplus trading rule is that it creates incentives for countries to prepare their emissions inventories early. As a result, even if trading of unverified surplus occurs on the futures market, buyers have access to important information regarding the likelihood of a country's compliance, given the existence of annual verified inventories. While this information is largely irrelevant in a seller-liability framework, in the futures market it can be vitally important for investors.
259. 2. Id. art. 16.3. The EU ETS penalty, however, is sufficiently high to be effective and, since it does not release a member state from its obligation to achieve compliance, does not act as a price cap. See OECD Env't Directorate & IEA, Linking Non-EU Domestic Emissions Trading Schemes with the EU Emissions Trading Scheme, at 29, OECD Doc. COM/ENV/EPOC/IEA/STL(2004)6 (June 17, 2004) (prepared by William Blyth & Martina Bosi) [hereinafter OECD, Linking]; CTR. FOR CLEAN AIR POLICY, DESIGN OF A PRACTICAL APPROACH TO GREENHOUSE GAS EMISSIONS TRADING COMBINED WITH POLICIES AND MEASURES IN THE EC 21-22 (1999);
260. VIVIAN E. THOMSON, PEW CTR. ON CLIMATE CHANGE, EARLY OBSERVATIONS ON THE EUROPEAN UNION'S GREENHOUSE GAS EMISSION TRADING SCHEME: INSIGHTS FOR UNITED STATES POLICYMAKERS 16 (2006);
261. Joseph Kruger & William A. Pizer, The EU Emissions Trading Directive: Opportunities and Potential Pitfalls 36 (Resources for the Future, Discussion Paper 04-24, 2004).
262. See, e.g., CATHERINE BOEMARE & PHILIPPE QUIRION, CIRED, INTERACTION IS EU CLIMATE POLICY: INTERACTION BETWEEN THE E.U. DIRECTIVE AND SELECTED NATIONAL POLICIES: THE CASE OF FRANCE 4 tbl.1, 12 (2002); Josh Carmody, Baker & McKenzie, International Trading Schemes: Lessons and Links, Presentation at the AETF & CRC for Greenhouse Accounting Sydney Seminar, at slide 15 (Apr. 20, 2004), available at http://www.aetf.emcc.netau/ pdf_events/past_events_ppt/Carmody20040420.ppt; Reg'l Greenhouse Gas Initiative (RGGI), Summary of June 25, 2004 RGGI Stakeholder Workshop on GHG Offsets 3, available at www.rggi.org/docs/offsets_workshopsummary.pdf (last visited May 1, 2007).
263. However, the EU has been a vocal proponent of a shared liability rule for overselling under the Kyoto Protocol. See ROLFE & NOWLAN, supra note 51, at 13. The EU proposal would impose full seller liability and would invalidate some AAUs for the buyer until the seller can demonstrate compliance. At such time as compliance is assured, the temporarily invalidated AAUs may be used by the buyer. Id.
264. Although the premium obtained in the sale of tradable allowances in the EU ETS might push firms to use emissions-reducing technologies to gain tradable surplus, no full analysis of the market impacts of such a regime has been conducted as of yet. Futures markets have served to address the liquidity problem somewhat, though the impact of the system upon trading volume, efficiency, and environmental outcomes is still largely unknown.
265. See UNFCCC, THE FIRST TEN YEARS, supra note 31, at 92.
266. Steve Sorrell, The UK Emissions Trading Scheme, in KOREAN ENV'T INST. ET AL., DOMESTIC. GREENHOUSE GAS EMISSIONS TRADING SCHEMES 29, 31 (n.d.), available at http://www.iges.or.jp/en/cp/output_all/presentation/ ECOASIA/keiigeset.pdf (last visited May 1, 2007).
267. See NERA ECON. CONSULTING, REVIEW OF THE FIRST AND SECOND YEARS OF THE UK EMISSIONS TRADING SCHEME 5-6 (2004), available at http://www.defra.gov.uk/environment/climatechange/trading/uk/pdf/nera- commissionreport.pdf.
268. 2.
269. See id. at 35 tbl.3.2. It is believed, however, that the penalty
270. See id. at 43.
271. UNFCCC, THE FIRST TEN YEARS, supra note 31, at 92;
272. Sorrell, supra note 142, at 32. However, the project component - that is, the last two categories of participants - seems unlikely to come into effect.
273. KIM & HAITES, supra note 112, at 21;
274. see also Sorrell, supranote 142, at 31.
275. See Sorrell, supra note 142, at 41.
276. KIM & HAITES, supra note 112, at 25. Electricity generators and oil refineries are excluded from participation in the UK ETS due to the potential for double-counting emissions reductions by such entities.
277. See Sorrell, supra note 144, at 5, 41. This is in stark contrast to the trading scheme in Denmark which involves only electricity generators, Id. at 35 n.6.
278. KIM & HAITES, supra note 112, at 21.
279. Id. at 25.
280. Allowances obtained through superior performance, however, cannot be banked into future years or commitment periods. Id.
281. MATTHIEU GLACHANT & GILDAS DE MUIZON, CLIMATE CHANGE AGREEMENTS IN UK: A SUCCESSFUL POLICY EXPERIENCE? 18-19 (2006), available at http://www.cema.ensmp.fr/Documents/MG-GM- ClimateChangeAgreements.pdf.
282. KIM & HAITES, supra note 112, at 26.
283. Sorrell, supra note 142, at 4344.
284. See STEVE SORRELL, SCIENCE AND TECHNOLOGY POLICY RESEARCH, BACK TO THE DRAWING BOARD?: IMPLICATIONS OF THE EU EMISSIONS TRADING SCHEME FOR UK CLIMATE POLICY 25-29 (2003), available at http://www.sussex.ac.uk/spru/ documents/drawingreport.pdf;
285. see also Steve Sorrell, Turning an Early Start into a False Start: Implications of the EU Emissions Trading Directive for the UK Climate Change Levy and Climate Change Agreements, at 22, OECD Doc. CCNM/GF/SD/ENV(2003)7/FINAL (exploring the effect of CCAs on the relationship between the EU ETS and the UKETS).
286. Letter from Mario Monti, Member of the Eur. Comm'n, to the Right Hon. Jack Straw MP, Sec'y of State for Foreign & Commonwealth Affairs, U.K. 10-12 (May 28, 2001), available at http://ec.europa.eu/community_law/ state_aids/comp-2001/n416-01.pdf.
287. Id.; see also Sorrell, supra note 142, at 31.
288. See George Jones, Blair Cuts Out Bush in Deal with Schwarzenegger To Set Up Carbon Trading Scheme, DAILY TELEGRAPH (London), Aug. 1, 2006, at 6.
289. See generally Global Warming Solutions Act, A.B. 3293, 2005-2006 Leg., Reg. Sess. (Cal. 2006) (enacted) (establishing a mandatory cap on California GHG emissions).
290. See Laurence R. Heifer, Regime Shifting: The TRIPs Agreement and New Dynamics of International Intellectual Property Lawmaking, 29 YALE J. INT'L L. 1, 7 (2004) (noting that the persistence of benefits to states from regimes modify barginaing between them);
291. see also ANDREAS HASENCLEVER ET AL., THEORIES OF INTERNATIONAL REGIMES 108 (1993).
292. See ROBERT O. KEOHANE & JOSEPH S. NYE, POWER AND INTERDEPENDENCE: WORLD POLITICS IN TRANSITION 43 (1977).
293. See Raustiala & Victor, supra note 8, at 279-80, 296-99.
294. Indeed, shifting the discussion to a new regime may be preferable for some actors who seek to propose more radical changes, since seeking changes within an existing regime may result in a significant backlash that ultimately undermines the likelihood of adoption of the desired changes. See Heifer, supra note 158, at 14-15, 58-59 (noting that attempts to change regimes create conflicts when other countries prefer the status quo);
295. see also Oona A. Hathaway, Path Dependence in the Law: The Course and Pattern of Legal Change in a Common Law System, 86 IOWA L. REV. 601, 609-13 (2001) (discussing path dependence in the context of international trade and politics).
296. Indeed, negotiation efficiency between and among parties at different levels is one reason regime complexes develop. See Memorandum from David Victor to the Participants, Nested and Overlapping Regimes Conference (Feb. 9, 2006) (on file with author) (proposing that regimes endure where they overlap with each other).
297. For instance, countries may seek regional agreements to tie emissions trading to other interests of theirs, such as liberalization of economic regimes. See Heifer, supra note 158, at 21-22 (describing the effectiveness of this approach in the intellectual property context).
298. See Edward D. Mansfield & Eric Reinhardt, Multilateral Determinants of Regionalism: The Effects of GATT/WTO on the Formation of Preferential Trading Arrangements, 57 INT'L ORG. 829, 835-36 (2003) (discussing the importance of promoting the interests of smaller states to bolster bargaining power).
299. Structural differences from, or opposition to, the Protocol might cause a country to seek to form a regime operating in parallel to the Protocol. On the other hand, implementation differences alone might counsel a country to form a subsidiary, nested elemental regime designed to implement the goals of Kyoto. Such differences, however, might also push a country toward seeking the creation of a parallel regime, if, for instance, the country desires additional prestige or voice in the process. The effect of parallel regimes, such as the Asia-Pacific Partnership on Clean Development and Climate, on the global warming regime complex is beyond the scope of this Article, but it is likely significant.
300. Based upon economic indicators, net buyers and sellers should prefer different liability rules until emissions targets become strict-something unlikely to happen within the next commitment period. At such a time, the selling country would prefer seller's liability because the cost of absorbing the liability is less than the constraint placed upon market liquidity by buyer liability in such a situation. See Katrin Rehdanz, Economic Aspects of Climate Change 92-94 (May 3, 2004) (unpublished dissertation, University of Hamburg) (on file with author).
301. See, e.g., Charles D. Kolstad & Michael Toman, The Economics of Climate Policy 51 (Res. for the Future, Discussion Paper 00-40REV, 2001) (noting that buyer liability is a potential alternative when seller liability is politically infeasible).
302. While within each regime there will be net buyers and net sellers, countries may not know their relative status as buyers or sellers within a particular regime with great clarity. Whether or not a particular country understands which liability rule is to its own economic advantage, political balances vary by regime, as different countries hold differing amounts of political clout. Thus, different liability rules may emerge across different regimes. Further, some net buyer countries may seek a buyer-liability rule to promote increased responsibility and compliance from non-Annex I parties.
303. See Memorandum from Ken Abbott & Duncan Snidal for Alter-Meunier Princeton Nesting Conference, Nesting, Overlap and Parallelism: Governance Schemes for International Production Standards 10-11 (Feb. 2006), available at http://www.princeton.edu/~smeunier/Abbott%20Snidal%20memo. pdf (discussing points of conflict in regime competition).
304. Clean Air Act, 42 U.S.C. §§7401-7700 (2000); Clean Water Act, 33 U.S.C. §§ 1251-1387 (2000).
305. Of course, companies may decide to locate in a particular state for a number of reasons, and the environmental regulatory framework is not the only issue they consider. See Richard L. Revesz, Rehabilitating Interstate Competition: Rethinking the "Race-to-the-Bottom" Rationale for Federal Environmental Regulation, 67 N.Y.U. L. REV. 1210, 1234-35 (1992) (discussing traditional markets as a point of comparison for interstate competition and the "race-to-the-bottom").
306. Compare id. with Richard B. Stewart, Environmental Regulation and International Competitiveness, 102 YALE L.J. 2039, 2058 (1993) ("[T]here is no reason to suppose that international competition for comparative advantage will lead nations to adopt inappropriately low environmental standards."),
307. and Richard B. Stewart, Pyramids of Sacrifice? Problems of Federalism in Mandating State Implementation of National Environmental Policy, 86 YALE L.J. 1196, 1212 (1977) (noting that local governments face many uncertainties when unilaterally adopting high environmental standards).
308. See, e.g., Tamara L. Joseph, The Debate Over Environmental Standards in the European Community: A Race to the Top Rather Than a Race to the Bottom?, 6 N.Y.U. ENVTL. L.J. 161 (1997); Revesz, supra note 171.
309. See Alter & Meunier, supra note 114, at 365 ("[T]he inherently fluid and political nature of international politics makes judges far more hesitant to weigh in to resolve disputes about the hierarchy of competing rules.").
310. Id. at 364.
311. Cf. Cass R. Sunstein, Montreal Versus Kyoto: A Tale of Two Protocols (AEI-Brookings Joint Ctr. for Regulatory Studies, Working Paper No. 06-17, 2006), available at http://papers.ssrn.com/sol3/papers.cfm? abstract_id=913395 (suggesting that political motivations can explain the success of the Montreal Protocol, a harmonized regime, and the failure of the Kyoto Protocol, a multilayered regime complex).
312. See Brett Frischmann, Using the Multi-Layered Nature of International Emissions Trading and of International-Domestic Legal Systems To Escape a Multi-State Compliance Dilemma, 13 GEO. INT'L ENVTL. L. REV. 463, 491-506 (2001) (focusing on the different forms of noncompliance and the means that can be used to prevent and punish this behavior).
313. This analysis draws upon the neorealist theory of international relations. See, e.g., HANS J. MORGENTHAU, POLITICS AMONG NATIONS: THE STRUGGLE FOR POWER AND PEACE 9 (5th ed. 1973) ("Political realism does not assume that the contemporary conditions under which foreign policy operates, with their extreme instability and the ever present threat of large-scale violence, cannot be changed.") ;
314. KENNETH N. WALTZ, THEORY OF INTERNATIONAL POLITICS 134 (1979) (discussing the need for countries to "consider[] the ends of the state in relation to its situation," which may vary).
315. Helfer, supra note 158, at 55.
316. Alter & Meunier, supra note 114, at 365.
317. See Patrick Pfister, Clashing Arenas or Network Governance? The Challenges of Interplay in GM Food Regulation 20 (2005) (draft), available at http://web.fuberlin.de/ffu/akumwelt/bc2005/papers/pfister_bc2005.pdf.
318. See Raustiala & Victor, supra note 8, at 299-300 (arguing that forum shopping will persist because of different environmental regimes).
319. Heifer, supra note 158, at 17;
320. see also David D. Caron, The International Whaling Commission and the North Atlantic Marine Mammal Commission: The Institutional Risks of Coercion in Consensual Structures, 89 AM. J. INT'L L. 154, 155 (1995) (providing an example of such competition and conflict in the whaling context);
321. Joel P. Trachtman, Institutional Linkage: Transcending "Trade and... ", 96 AM. J. INT'L L. 77, 92 (2002) (observing that international organizations are constantly competing with each other for authority). Regime shifting is, in essence, forum shopping.
322. GA Res. 53, I 1, U.N. Doc. A/RES/43/53 (Dec. 6, 1988), available at http://www.un.org/documents/ga/res/43/a43r053.htm.
323. See Busby, supra note 40, at 41.
324. See Garrett Hardin, The Tragedy of the Commons, 162 SCIENCE 1243 (1968).
325. Laurence R. Heifer, Exiting Treaties, 91 VA. L. REV. 1579, 1637-38 (2005);
326. see also Brett Frischmann, A Dynamic Institutional Theory of International Law, 51 BUFF. L. REV. 679, 788-90 (2003) (arguing that the public good nature of the climate encourages states to hold out or demand concessions in the creation of regulatory regimes).
327. See, e.g., Tseming Yang, International Treaty Enforcement as a Public Good: Institutional Deterrent Sanctions in International Environmental Agreements, 27 MICH. J. INT'L L. 1131, 1155-59 (2006) (recognizing that collective action and consensus-building problems make it difficult to ensure ex ante compliance, requiring ex post compliance mechanisms).
328. On the other hand, the more stringent regimes may not harmonize at the lowest common denominator of regulation and enforcement. See OECD Env't Directorate & IEA, Towards International Emissions Trading: Design Implications for Linkages, at 33, OECD Doc. COM/ENV/EPOC/IEA/SLT(2002)5 (2002) (prepared by Richard Baron & Stephen Bygrave) [hereinafter OECD, International Emissions Trading] ("[T] here is no reason a priori why the lowest penalty should be what is agreed as the common penalty rate in the end."). In such a situation, the strict requirements of any particular regime become meaningless, though, as countries can shop for the least restrictive forum and trade through the various linked regimes. As linkages between elemental regimes increase over time, countries may validate trades conducted in the least protective regime through a linkage with the most protective regime. As a result, the regime complex is only as stringent as the weakest interlinked elemental regime.
329. See Keith Aoki, Reclaiming "Common Heritage" Treatment in the International Plant Genetic Resources Regime Complex, 2007 MICH. ST. L. REV. (forthcoming) (manuscript at 13, on file with author) (providing an example, in the context of intellectual property law, of how overlapping regimes create forum shopping);
330. Raustiala & Victor, supra note 8, at 299-302 (same);
331. see also Abbott & Snidal, supra note 169, at 8-11 (explaining how overlapping regimes generally lead to forum shopping and strategic inconsistency);
332. Alexander Gillespie, Forum Shopping in International Environmental Law: The IWC, CITES, and the Management of Cetaceans, 33 OCEAN DEV. & INT'L L. 17 (2002) (discussing similar issues in relation to environmental law protecting cetaceans).
333. See Ralf Schule, Linked Emissions Trading Schemes and the International Climate Regime - Bottom-Up Support of Top-Down Processes?, Presentation at JET-SET Conference on Linking Schemes: Potential Impacts of Linking the European Union Emissions Trading System with Emerging Carbon Markets in Other Countries (May 29-30, 2006), available at http://www. wupperinst.org/uploads/tx_wibeitrag/18-Schuele_Linking_Post2012_and_summary.pdf.
334. Jutta Brunnée, A Fine Balance: Facilitation and Enforcement in the Design of a Compliance Regime for the Kyoto Protocol, 13 TUL. ENVTL. L.J. 223, 236 (2000).
335. See Memorandum, David Victor, supra note 162;
336. see also Raustiala & Victor, supra note 8, at 301-02 (noting that states often create rules that are inconsistent across regimes in order to force change).
337. See ERIK HAITES WITH FIONA MULLINS, LINKING DOMESTIC AND INDUSTRY GREENHOUSE GAS EMISSION TRADING SYSTEMS 9-37, available at http://www.sbcsd.ch/web/projects/ cement/tfl/IETALinking.pdf (discussing a variety of trading programs).
338. Haites, supra note 61, at 106.
339. PEW CTR. ON GLOBAL CLIMATE CHANGE, LINKING U.S. AND INTERNATIONAL CLIMATE CHANGE STRATEGIES 7 (2002), available at http://www.pewclimate.org/docUploads/us_international_strategies.pdf.
340. See CTR. FOR CLEAN AIR POLICY, supra note 137, at 40-41 (contending that "buyer liability under the Kyoto Protocol... in no way means that buyer liability would be necessary within the EU system"). Others have argued that trading between differing liability schemes would mean that "trade would probably need to be restricted to banked allowances/credits. This assures the purchaser in the buyer-liability program that the allowances/credits are surplus to the seller's compliance needs." HAITES WITH MULLINS, supra note 194, at 60. As with a nonlinking scheme, this would result in significant liquidity concerns and might also promote two-tier pricing between guaranteed (banked) allowances and nonguaranteed allowances. Some have also suggested that market pressures will yield compliance mechanisms acceptable to all, rejecting the notion argued by some that there will inevitably be a race to the bottom.
341. See OECD, International Emissions Trading, supra note 189, at 33;
342. 2.
343. Rehdanz, supra note 166, at 84. There appears to be no solution to this problem in a single- or multicountry game.
344. Id. at 84-85.
345. OECD Env't Directorate & IEA, Emissions Trading: Taking Stock and Looking Forward, at 28, OECD Doc. COM/ENV/EPOC/IEA/SLT(2004)3 (June 1, 2004) (prepared by Cedric Philibert & Julia Reinaud). Conflict between such trade and environmental principles, manifested through a conflict between international trading regimes, could have serious impacts for international politics and global financial flows and widen the rift between the United States and Europe.
346. See Gilbert R. Winham, International Regime Conflict in Trade and Environment: The Biosafety Protocol and the WTO, 2 WORLD TRADE REV. 131, 132 (2003).
347. When price caps in a safety-valve system are not comparable, the lowest price cap should predominate. See Peterson, supra note 71, at 10 (arguing that if linked systems have penalties that are not comparable, "non-compliance is likely to be exported to the system with the lowest penalty level").
348. Linking schemes with price caps can be quite complicated and the issues raised by such linkages are beyond the scope of this Article. For a discussion of such issues, see OECD, Linking, supra note 137, at 29-31.
349. Wolfgang Sterk, Ready To Link Up? Implications of Design Differences for Linking Domestic Emission Trading Schemes, Presentation at JET-SET Conference on Potential Impacts of Linking the European Union Emissions Trading System with Emerging Carbon Markets in Other Countries (May 29-30, 2006), available at http://www.wupperinst.org/uploads/tx_wibeitrag/11-Sterk.pdf.
350. Commission Report, Building a Global Carbon Market, supra note 118, at 7-8, 12-14.
351. See Peterson, supra note 71, at 195 ("[I]f penalties are not comparable across linked systems, non-compliance is likely to be exported to the system with the lowest penalty level.").
352. See OECD Env't Directorate & IEA, Linking Project-Based Mechanisms with Domestic Greenhouse Gas Emissions Trading Schemes, at 35-36, OECD Doc. COM/ENV/EPOC/IEA/STL(2004)5 (June 16, 2004) (prepared by Stephen Bygrave & Martina Bosi) (describing the "double-counting" that can occur when an emissions credits regime is introduced on top of a previously existing one).
353. Sterk, supra note 200;
354. see also SORRELL, supra note 154, at 23 (noting that permitting parties with relative emissions targets to participate in trading regimes may result in a valid increase in the number of allowances provided under the elemental regime, but that such an increase could exceed the amount of allowances provided by the Protocol).
355. See Heifer, supra note 158, at 56-58 (explaining the incentives governments face, in the intellectual property context, to shift to regimes lacking strong enforcement mechanisms);
356. Peterson, supra note 71, at 10 (emphasizing the problems created when linked trading regimes have different enforcement mechanisms).
357. See Erik Haites & Xueman Wang, Environmental Effectiveness of Linked Trading Schemes, Presentation at JET-SET Conference on Potential Impacts of Linking the European Union Emissions Trading System with Emerging Carbon Markets in Other Countries (May 29-30, 2006), available at http://www.wupperinst.org/uploads/tx_wibeitrag/16-Haites_Wang.pdf.
358. See supra note 124.
359. See Tietenberg, supra note 112, at 251-52 (documenting the proliferation of trading schemes worldwide);
360. Jonathan Baert Wiener, Global Environmental Regulation: Instrument Choice in Legal Context, 108 YALE L.J. 677, 682 (1999) (describing the emerging consensus that "incentive based instruments such as... tradable allowances" are best suited to controlling emissions).
361. See supra Part III.
362. Some commentators have suggested that a trading regime complex might be desirable so "the international community will not have [to] put all its eggs in a single basket." DANIEL BODANSKY, U.S. CLIMATE POLICY POST-KYOTO: ELEMENTS FOR SUCCESS 1 (Carnegie Endowment for Int'l Peace, Policy Brief No. 15, 2002). These commentators argue that the nested and parallel regimes of the GHG regime complex may coexist peaceably with the Kyoto Protocol because they are merely supplements to Kyoto and would be beneficial.
363. See id. at 6 (describing the opportunities for local regulatory regimes to develop parallel to Kyoto);
364. Busby, supra note 40, at 47, 50 (arguing that sub-Kyoto regimes such as the Asian-Pacific Partnership on Clean Development and Climate can bring more countries to the Kyoto standard);
365. Oppenheimer & Petsonk, supra note 124, at 11-15 (describing the "possibility of a post-2012 climate regime comprised of nested and overlapping systems with positive 'markets beget markets' elements"). Indeed, some have also suggested that regional regimes enjoy a more favorable political environment and thus are likely to be stronger regimes, since they do not have to deal as much with countries having different views.
366. See BODANSKY, supra, at 6 (arguing that "regional human rights agreements have tended to be more effective than global regimes" because the participants' "common views... give them greater trust in one another"). A more inclusive regime, however, is likely to avoid potential intentional noncompliance by developing countries that view a club model of developed country-led regional regimes as unrepresentative of their interests.
367. See Busby, supra note 40, at 46 ("If... major emitters create an agreement among themselves... [p]oor countries can be expected to protest if there is no institution to represent their interests."). Indeed, when isolated into smaller trading groups, developed countries will likely be able to exert significantly greater pressure on seller parties to obtain monopsony prices.
368. One commentator has argued that design differences in national trading schemes are surmountable and will likely be resolved because "at least one of the governments involved has an incentive to solve the problem." Haites, supra note 61, at 115. This Article is skeptical of such an outcome, because at least one country is likely to have an equal incentive to avoid harmonization. The trend for harmonization, as is typical for international regimes, is to occur at the most stringent point at which all parties can agree - a point certain to be less stringent than bilateral or regional trading systems. This applies to liability rules because buyer-liability rules are likely to result in environmentally preferable outcomes, while seller-liability rules provide systemic and administrative benefits. A strict regime focused on environmental benefit would prefer a buyer-liability system, while a system intent on administrative ease would employ a seller-liability rule.
369. See Katrin Rehdanz & Richard S.J. Toi, Unilateral Regulation of Bilateral Trade in Greenhouse Gas Emission Permits, 54 ECOLOGICAL ECON. 397 (2005) (describing the need for an international mechanism through which regional emissions plans can be coordinated to achieve efficient reduction of emissions);
370. Dieter Schmidtchen et al., Conflict of Law Rules and International Trade: A Transaction Costs Approach 25 (Ctr. for the Study of Law and Econ., Discussion Paper 2004-01, 2004) ("The transaction costs of international business can be reduced by a workable international legal order."). A single regime may be preferable to a harmonized regime because a regime complex, even when harmonized, introduces complicated reporting, monitoring, and other issues, while undermining global efforts at achieving cooperation. A single regime has the added benefit of increasing pressure on holdouts to join the regime. On the other hand, a harmonized regime allows for the possibility of greater participation through inclusion of countries that may not be signatories to the Kyoto Protocol.
371. See BOEMARE & QUIRION, supra note 138, at 15 (arguing that a "high degree of harmonization" is necessary to "equali[z]e costs and benfits in each country").
372. OECD, International Emissions Trading, supra note 105, at 16.
373. Robert N. Stavins, Policy Instruments for Climate Change: How Can National Governments Address a Global Problem? 25-26 (Res. for the Future, Discussion Paper 97-11, 1997) (describing the advantages of the "broad, then deep" strategy for eliminating free riding).
374. See Haites, supra note 61, at 107-08 (arguing that "voluntary links" between different regimes can achieve the same goal as formal harmonization).
375. Kerr, supra note 83, at 10.
376. Barton "Buzz" Thompson, Remarks at the University of Pennsylvania Law Review Symposium: Responses to Global Warming: The Law, Economics, and Science of Climate Change (Nov. 16-17, 2006) (noting that countries may not approve of linkages with stronger trading regimes or with regimes that do not have similar procedures to recognize offsets, for instance).
377. See Raustiala & Victor, supra note 8, at 300-01 (noting that it is hard to achieve "legal consistency" where there are an "extremely large number of issues and complex interactions" to be harmonized).
378. Haites, supra note 61, at 114.
379. While a surplus trading regime may be equally effective in limiting overselling, this Article considers a CPR to be preferable as it creates greater liquidity and avoids the speculation of futures markets.
380. The concept of a CDF was proposed initially by Brazil in the lead-up to Kyoto. Proposed Elements of a Protocol to the United Nations Framework Convention on Climate Change, Presented by Brazil in Response to the Berlin Mandate (May 28, 1997), in UNFCCC, Ad Hoc Group on the Berlin Mandate, Implementation of the Berlin Mandate: Additional Proposals from Parties, at 3, 6-7, U.N. Doc. FCCC/AGBM/1997/MISC.1/Add.3 (May 30, 1997) [hereinafter Brazil Proposal]. CIEL and EURONATURA were also early CDM proponents.
381. See GOLDBERG ET AL., supra note 40, at 17.
382. See generally GLENN M. WISER & DONALD M. GOLDBERG, CTR. FOR INT'L ENVTL. LAW, RESTORING THE BALANCE: USING REMEDIAL MEASURES TO AVOID AND CURE NON-COMPLIANCE UNDER THE KYOTO PROTOCOL (2000) (describing the logic of creating a fund to address noncompliance).
383. When the CDF was proposed in Protocol negotiations, it initially drew significant support. It was abandoned, however, because some countries "perceived it as a potential form of financial penalty, while others suspected that it would be used to set a 'price cap' on the compliance costs of parties." Xueman Wang & Glenn Wiser, The Implementation and Compliance Regimes Under the Climate Change Convention and Its Kyoto Protocol, 11 REV. EURO. COMMTY. & INT'L ENVTL. L. 181, 197 (2002). Given these prior negotiations, the parties might be unlikely to accept a CDF with a safety-valve price mechanism. Such a view, however, should not prevent the creation of a CDF, as parties potentially could only have the option of paying into the fund when AAUs are unavailable on the market.
384. While some have viewed the CDF as a possible financial penalty, this view is inaccurate. Article 18 of the Kyoto Protocol prohibits the imposition of binding financial penalties as a result of party noncompliance without first amending the Protocol. Kyoto Protocol, supra note 37, art. 18. It may be desirable in the future to mandate the use of the CDF, at which time an amendment to the Protocol would be necessary. In the meantime, however, the tenuous political alliance surrounding the Protocol may make achieving such an amendment difficult. Accordingly, as an interim measure until political will for a mandatory CDF is established, the CDF should be an optional compliance mechanism in which noncompliant parties may elect to participate.
385. See Brazil Proposal, supra note 222.
386. As long as the CDF is optional, though, there will be a continuing danger that parties will not elect to avoid noncompliance through the CDF, but rather will submit to the existing sanctions under the Protocol since those sanctions are weak. Consider, for instance, a sanction requiring noncompliant parties to reduce their emissions to a greater extent in future commitment periods. Such a sanction is likely to be ineffectual, as parties may be noncompliant within every commitment period despite the sanction, thereby "borrowing" future emissions reductions. GOLDBERG ET AL., supra note 40, at 20.
387. Id.
388. Id.
389. The possibility of failed CDF projects and the time lag for achieving emissions reductions through CER projects suggest the CDF should be used only as a last resort. This Article proposes that the CDF be made available to innocent parties to the Protocol only when the price of AAUs exceeds a predetermined safety-valve price or, if such an approach is difficult to achieve politically, when no AAUs may be purchased on the trading market.
390. The CDF can also be used to promote compliance by parties that intentionally oversell. Application of the CDF to intentionally noncompliant parties, however, requires caution. From a normative standpoint, a showing of a bad faith attempt to comply with the Protocol should trigger enhanced penalties so those parties do not reap any benefit from their noncompliance. This might happen if the price of AAUs on the trading market increases above the cost of obtaining emissions reductions through the CDF. This Article suggests that a multiplier should be applied to the price of emissions reductions earned through the CDF for intentionally noncompliant parties. See GOLDBERG ET AL., supra note 40, at 19 (arguing that use of such a "multiplier" would allow the CDF to avoid "becoming a solution of first choice"). While such a requirement might be somewhat difficult to implement in practice, from both political and merits-based perspectives, this Article contends that the CDF or the enforcement body of the Protocol could fairly determine whether a country was in noncompliance as a result of intentional game playing and strategic behavior or through an innocent mistake. Certainly, checks and balances in such a determination will be necessary to avoid politically motivated determinations by the enforcement body and self-serving determinations by the CDF.
391. See Bohm, supra note 68, at 21 ("[C]ompliance is controlled by two deterrents for seller parties but by only one for other parties that violate the same rules and face the same incentives to do so.").