Sustainable development and market liberalism's shotgun wedding: Emissions trading under the Kyoto protocol

Indiana Law Journal

Volumn 83, Issue 1, 2008, Pages 21-69

  Driesen, David M ^a  

^a National Institute of Disability Rehabilitation and Research

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EID: 44649087603     PISSN: 00196665     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Review

References (457)

1. See ANDREW E. DESSLER & EDWARD A. PARSON, THE SCIENCE AND POLITICS OF GLOBAL CLIMATE CHANGE: A GUIDE TO THE DEBATE 8 (2006) (explaining that greenhouse gases warm the earth by absorbing infrared radiation that would otherwise escape into space).
2. See Kyoto Protocol to the United Nations Framework Convention on Climate Change, opened for signature Dec. 10, 1997, 37 I.L.M. 22 [hereinafter Kyoto Protocol].
3. See generally MICHAEL GRUBB, CHRISTIAAN VROLIJK & DUNCAN BRACK, KYOTO PROTOCOL: A GUIDE AND ASSESSMENT (1999);
4. FARHANA YAMIN & JOANNA DEPLEDGE, THE INTERNATIONAL CLIMATE CHANGE REGIME: A GUIDE TO RULES, INSTITUTIONS, AND PROCEDURES (2004).
5. See Kyoto Protocol, supra note 2, art. 12;
6. Kevin A. Baumert, Note, Participation of Developing Countries in the International Climate Change Regime: Lessons for the Future, 38 GEO. WASH. INT'L L. REV. 365, 383 (2006) (explaining that the Clean Development Mechanism described in article 2 of the Kyoto Protocol allows "companies from industrialized countries to. . . receive emission reduction credits from projects based in developing countries.").
7. See generally David M. Driesen, Free Lunch or Cheap Fix?: The Emissions Trading Idea and the Climate Change Convention, 26 B.C. ENVTL. AFF. L. REV. 1,27-35 (1998) (analyzing the key language in the Kyoto Protocol authorizing trading). In all likelihood, the producer can only substitute credits for some of her reductions, because the Kyoto Protocol requires that trading function as a supplement to domestic reductions.
8. See Kyoto Protocol, supra note 2, arts. 6(1)(d), 12(3)(b), 17. For any particular producer, the extent of permissible reliance on foreign credits will depend upon domestic trading rules implementing the Kyoto Protocol's "supplementarity" requirement.
9. See Sharon Long & Giedre Kaminskaite-Salters, The EU ETS - Latest Developments and the Way Forward, 1 CARBON & CLIMATE L. REV. 64, 65 (2007) (pointing out that EU member states are required to set limits on the use of credits from the CDM to conform to the Kyoto Protocol's "supplementarity" requirement).
10. See generally PRICEWATERHOUSECOOPERS LTD., CDM PROJECT DESIGN DOCUMENT: PROJECT FOR GHG EMISSION REDUCTION BY THERMAL OXIDATION OF HFC 23 AT HCFC 22 PLANT OF GUJARAT FLUOROCHEMICALS LIMITED (GFL), available at http://cdm.unfccc.int/ UserManagement/FileStorage/ FS_59491890 [hereinafter HFC PDD] (describing installation and operation of a thermal oxidation system to control HFC 23 emissions).
11. See National Energy Conservation Policy Act, 42 U.S.C. §15851 (2006) (stating that renewable energy includes "solar . . . resources.");
12. U.S. EPA, STATE AND LOCAL CLIMATE CHANGE PROGRAM, CLIMATE CHANGE TECHNOLOGIES: SOLAR ENERGY 1 (2000), available at http://yosemite.epa.gov/oar/globalwarming.nsf/uniquekeylookup/shsu5bvr3a/ $file/solarenergy. pdf (stating that solar energy technologies emit no greenhouse gases during operation);
13. CLIMATE CHANGE 1995 : ECONOMIC AND SOCIAL DIMENSIONS OF CLIMATE CHANGE 241 (James P. Bruce, H. Lee & E.F. Haites eds., 1996) (noting that renewable energy sources emit little carbon and that switching to them reduces emissions);
14. 2 Emissions Trading Directive and the Climate Stewardship Act, 45 NAT. RESOURCES J. 865, 936 (2005) (explaining that renewable energy reduces emissions by avoiding fossil fuel combustion);
15. Kirsten H. Engel, The Dormant Commerce Clause Threat to Market-Based Environmental Regulation: The Case of Electricity Deregulation, 26 ECOLOGY L.Q. 243,270 n.73 (1999) (stating that renewable energy produces no carbon emissions).
16. See generally Simone Espey, Renewable Portfolio Standard: A Means for Trade With Electricity from Renewable Energy Sources?, 29 ENERGY POL'Y 557, 558 (2001) (explaining that renewable resources are "inexhaustible").
17. See Jolene Lin Shuwen, Assessing The Dragon's Choice: The Use of Market-Based Instruments in Chinese Environmental Policy, 16 GEO. INT'L ENVTL. L. REV. 617, 633 (2004) (emissions trading creates incentives for firms to minimize the aggregate costs of producing a given level of environmental quality);
18. Thomas K. Ruppert, Water Quality Trading And Agricultural Nonpoint Source Pollution: An Analysis Of The Effectiveness And Fairness Of EPA's Policy On Water Quality Trading, 15 VILL. ENVTL. L.J. 1,4-5 (2004) (describing trading as encouraging parties with the least cost abatement options to reduce their pollutant loadings). These technological options involve choosing between reductions of two different greenhouse gases. The climate change regime employs scientific assessment of different greenhouse gases' relative contributions to global warming to create trading ratios, measuring the value of all relevant emission reductions in carbon dioxide equivalents.
19. See INTERGOVERNMENTAL PANEL ON CLIMATE CHANGE, WORKING GROUP I, IPCC THIRD ASSESSMENT REPORT: THE SCIENTIFIC BASIS, ch. 6.12.2 (2001), available at http://www.grida.no/ climate/ipcc_tar/wg1/248.htm;
20. Richard B. Stewart & Jonathan B. Wiener, The Comprehensive Approach to Global Climate Policy: Issues of Design and Practicability, 9 ARIZ. J. INT'L & COMP. L. 83, 86 (1992).
21. See generally James Salzman & J.B. Ruhl, Currencies and the Commodification of Environmental Law, 53 STAN. L. REV. 607 (2000) (explaining that choosing a common currency for environmental benefits trades can prove problematic). For a potent greenhouse gas like HFC 23, a relatively small amount of reduction can generate a carbon benefit (i.e., reduced warming) equal to a relatively large carbon dioxide reduction. For purposes of understanding the text's hypothetical problem, the reader should assume that both technological options deliver the same amount of carbon dioxide equivalents. Also, this Article uses the term carbon in isolation to refer to carbon dioxide equivalents.
22. See KARAN CAPOOR & PHILIPPE AMBROSI, STATE AND TRENDS OF THE CARBON MARKET 2006 i (2006), available at http://carbonfinance.org/ docs/StateoftheCarbonMarket2006.pdf (characterizing HFC projects as the "lowest-cost options" and therefore becoming the "first asset classes to be systematically tapped globally.");
23. Xingshu Zhao & Axel Michaelowa, CDM Potential for Rural Transition in China Case Study: Options in Yinzhou District, Zhejiang Province, 34 ENERGY POL'Y 1867, 1876 (2006) (finding the initial cost of solar installation high, even though over the long term it is cost competitive).
24. See Douglas A. Kysar, Sustainable Development and Private Global Governance, 83 TEX. L. REV. 2109, 2116 (2005).
25. See World Comm'n on Env't & Dev., Our Common Future: Report of the World Commission on Environment & Development, at 54, U.N. Doc A/42/427 (Aug. 4, 1987) [hereinafter BRUNDTLAND REPORT] (defining sustainable development as development meeting the current generation's needs without compromising future generations' ability to meet their own needs).
26. See Baumert, supra note 3, at 384 (explaining that the CDM encourages private sector project development to seek out the least cost reductions);
27. cf. David M. Driesen, Markets Are Not Magic, ENVTL. F., Nov .-Dec. 2003, at 19 (discussing the "tendency to view the free market as a magical solution to environmental problems").
28. See HFC PDD, supra note 4, at 8.
29. Montreal Protocol on Substances that Deplete the Ozone Layer, Sept. 16, 1987, S. Treaty Doc. No. 100-10, 1522 U.N.T.S.3,26 I.L.M. 1550;
30. see also MENOJ MEHROTA, POSSIBLE ALTERNATIVE APPROACHES TO ASSESSING THE BASELINE SCENARIO FOR DESTRUCTION OF HFC 23 IN THE HCFC 22 INDUSTRY 2 (noting that India has ratified the Montreal Protocol with its London and Beijing Amendments and has passed implementing regulations addressing HCFC 22).
31. But see EXECUTIVE COMMITTEE OF THE MULTILATERAL FUND FOR THE IMPLEMENTATION OF THE MONTREAL PROTOCOL, COUNTRY PROGRAM UPDATE: INDIA 3 (2006), available at http://www.multilateralfund.org/files/49/4937.pdf (stating that HCFC 22 production has gone up in India even while India has phased out other ozone depleters).
32. See Gerard Winn, U.N. Kyoto Chief Judges Climate Change Options, REUTERS, May 30,2006, http://www.sea-user.org/news-detail. php?news_id=1607 (quoting a UN official who criticized the HFC 23 reduction project and stated that "the environmental benefits must be clear for future generations.").
33. See Intergovernmental Panel on Climate Change, Technology and Economic Assessment Panel, Special Report: Safeguarding the Ozone Layer and the Global Climate System: Issues Related to Hydroflurocarbons and Perfluorocarbons, at 394-396, U.N.Doc. FCCC/SBSTA/2005/L.8 (May 26, 2005), available at http://arch.rivm.nl/env/int/ipcc/ pages_media/SROC-final/ SpecialReportSROC.html (explaining that HFC-23 emission formation depends upon the HCFC-22 manufacture process, which implies that no reductions can occur once the facilities are shut);
34. Yvonne Hofman, David de Jager & Sina Wartmann, Climate Change Scientific Assessment and Policy Analysis: Instrumentation of HFC-23 Emission Reduction from the Production of HCFC-22, ECOFYS REPORT, at 7 (2006), available at http://www.mnp.nl/bibliotheek/ rapporten/500102006.pdf (same).
35. Cf. OTHMAR SCHWANK, CONCERNS ABOUT CDM PROJECTS BASED ON DECOMPOSITION OF HFC-23 EMISSIONS FROM HFC-23 EMISSIONS FROM 22 HCFC PRODUCTION SITES 4 (2004), available at http://cdm.unfccc.int/public_inputs/inputam0001/Comment_AM0001_Schwank_081004. pdf (expressing a concern that approval of CDM credits for emissions associated with HCFC 22 production may create an incentive to delay phasing out this ozone depleting chemical). If one assumes that the carbon credits will create sufficient incentives to keep the HCFC 22 plant open, then the decision to use this option creates a continuing carbon benefit, but creates an ozone depletion cost. Either way, the net societal value of the project may be less than that associated with a project that does not involve an ozone depleting production process.
36. 2).
37. See RICHARD A. POSNER, CATASTROPHE: RISK AND RESPONSE 15 (2004) (explaining that breakthroughs in solar technology could help enable a substitution of solar energy for fossil fuels at reasonable cost).
38. See id. (describing global warming as largely a product of fossil fuel combustion);
39. Richard B. Stewart, Economic Incentives for Environmental Protection: Opportunities and Obstacles, in ENVIRONMENTAL LAW, THE ECONOMY, AND SUSTAINABLE DEVELOPMENT 228 (Richard L. Revesz, Philippe Sands & Richard B. Stewart eds., 2000) (characterizing carbon dioxide as "the most important" greenhouse gas).
40. Cf. POSNER, supra note 16, at 59 (recognizing that fossil fuel resources are finite, but arguing that they may not be finite relative to human demand because prices will rise when they become scarce).
41. See Kysar, supra note 8, at 2114-18 (discussing the rise of market liberalism and international interest in sustainable development).
42. Cf. Barbara Ann White, Economic Efficiency and the Parameters of Fairness: A Marriage of Marketplace Morals and the Ethic of Care, 15 CORNELL J.L. & PUB. POL'Y 1, 2 (2005) ("The great divide among scholars... is between those who advocate for using theories of welfare-maximization derived from the study of market forces and those who urge that fairness ... should predominate ....").
43. See, e.g., WILLFRED BECKERMAN, A POVERTY OF REASON : SUSTAINABLE DEVELOPMENT AND ECONOMIC GROWTH xii (2003) (an economist arguing that the sustainable development ideal is not ethically superior to the "economist's goal of maximizing the sum of human welfare over future generations");
44. HERMAN E. DALY, BEYOND GROWTH: THE ECONOMICS OF SUSTAINABILITY (1996);
45. GEOFFREY HEAL, VALUING THE FUTURE: ECONOMIC THEORY AND SUSTAINABILITY (1998);
46. Kysar, supra note 8, at 2118-47 (describing tensions between market liberalism and sustainable development).
47. See Thomas O. McGarity, The Expanded Debate over the Future of the Regulatory State, 63 U. CHI. L. REV. 1463, 1492 (1996).
48. See Kysar, supra note 8, at 2120 (noting that neoclassical economics does support some regulation).
49. See, e.g., Robert W. Hahn & Robert E. Litan, Counting Regulatory Benefits and Costs: Lessons for the US and Europe, 8 J. INT'L ECON. L. 473, 481 (2005) (illustrating CBA approach to regulation);
50. McGarity, supra note 22, at 1491-97 (explaining that "free marketeers" favor CBA and market-based mechanisms).
51. The term neoliberal describes a world view embracing broad reliance on global markets and supporting economic concepts (i.e., the view embracing market liberalism). See Kysar, supra note 8, at 2116.
52. See id. at 2116 (identifying market liberalism with a "neoliberal political philosophy" and "cultural exaltation of the market").
53. See, e.g., POSNER, supra note 16, at 201 (claiming that economics is both normative and positive).
54. See, e.g., RICHARD A. POSNER, THE ECONOMICS OF JUSTICE (1983);
55. Louis Kaplow & Steven Shavell, Fairness v. Welfare, 114 HARV. L. REV. 961, 968 (2001).
56. See McGarity, supra note 22, at 1484-1513 (contrasting "radical anti-interventionists" opposing nearly all government regulation with other neoliberal groups that support reformed regulation).
57. See David M. Driesen, The Societal Cost of Environmental Regulation: Beyond Administrative Cost-Benefit Analysis, 24 ECOLOGY L.Q. 545, 552-53(1997).
58. See id. at 553 (discussing economists' characterization of harms from pollution as a cost external to the market).
59. See id. (explaining that economists support regulating and/or taxing pollution to internalize pollution's cost).
60. See id. at 577-78 (explaining the concept of an optimal, i.e., efficient, level of pollution as that where the marginal benefits of control equal the marginal costs).
61. See DAVID M. DRIESEN, THE ECONOMIC DYNAMICS OF ENVIRONMENTAL LAW 1 (2003) (describing the "economics-based regulatory reform agenda" as including increased use of CBA).
62. See Driesen, supra note 30, at 558 (explaining that CBA requires the comparison of pollution control costs with "costs" consisting of environmental and health effects).
63. See David M. Driesen, Getting Our Priorities Straight: One Strand of the Regulatory Reform Debate, 31 ENVT'L L. REP. 10003, 10019 n.204 (2001).
64. See Driesen, supra note 30, at 558-59 (noting the difficulty of quantifying these benefits).
65. See WILLIAM J. BAUMOL & WALLACE E. OATES, THE THEORY OF ENVIRONMENTAL POLICY 23 (1975);
66. Driesen, supra note 30, at 582-83.
67. See THOMAS O. MCGARITY, REINVENTING RATIONALITY: THE ROLE OF REGULATORY ANALYSIS IN THE FEDERAL BUREAUCRACY 5 (1991) (characterizing CBA as supporting "comprehensive analytical rationality").
68. See DRIESEN, supra note 34, at 1 (discussing use of "economic incentive" measures to meet environmental goals as part of the "economics-based regulatory reform agenda").
69. See Driesen, supra note 30, at 564-65 (explaining the difference between allocatively efficient goal selection and selection of cost-effective means of meeting chosen goals).
70. See David M. Driesen, What is Free Trade: The Real Issue Lurking Behind the Trade and Environment Debate, 41 VA. J. INT'L L. 279, 287-91 (2001) (describing free trade's classical origins and explaining that modern economists "employ an allocative efficiency test" in thinking about free trade).
71. See Jonathan Baert Wiener, Global Environmental Regulation: Instrument Choice in Legal Context, 108 YALE L.J. 677, 748 (1999) (explaining that widening participation in emissions trading to include developing countries reduces abatement costs).
72. BRUNDTLAND REPORT, supra note 9, at 54. I have not attempted to provide a comprehensive account of sustainable development's elements here, but instead focus on the components most relevant to this Article's thesis.
73. See generally John Martin Gillroy, Adjudication Norms, Dispute Settlement Regimes and International Tribunals: The Status of "Environmental Sustainability" in International Jurisprudence, 42 STAN. J. INT'L L. 1, 12 (2006) (identifying eight sustainable development "sub-principles").
74. MARIE-CLAIRE CORDONIER SEGGER & ASHFAQ KHALFAN, SUSTAINABLE DEVELOPMENT LAW: PRINCIPLES, PRACTICES, AND PROSPECTS 15 (2004) (discussing sustainable development's origins as a " compromise" term);
75. PHILIPPE SANDS, PRINCIPLES OF INTERNATIONAL ENVIRONMENTAL LAW 252 (2d ed. 2003) (stating that the term sustainable development now appears regularly in international environmental instruments).
76. See, e.g., BECKERMAN, supra note 21, at xi;
77. SEGGER & KHALFAN, supra note 45, at 4 (explaining that the vagueness of the sustainable development concept helped it gain universal acceptance, but creates "difficulties").
78. E.g., Kysar, supra note 8, at 2118.
79. See Rio Declaration on Environment and Development, U.N. Conf. on Env't & Dev., principle 4, U.N. Doc. A/CONF.151/6/Rev. 1, 31 I.L.M. 874 (June 16, 1992) (stating that achievement of sustainable development requires the integration of environmental and developmental concerns);
80. John C. Dernbach, Sustainable Development: Now More than Ever, in STUMBLING TOWARD SUSTAINABILITY 51-53, 56 (John C. Dernbach ed., 2002);
81. SANDS, supra note 45, at 263 (discussing integration of environment and development as an "element" of sustainable development);
82. SEGGER & KHALFAN, supra note 45, at 3 (explaining that sustainable development seeks to encourage integrated solutions to our most important problems by requiring "accommodation between economic development, social justice, and environmental protection . . . . through a process requiring public participation").
83. BRUNDTLAND REPORT, supra note 9, at 22.
84. Id. at 25-27 (affirming that it is possible to make development sustainable and then explaining how this requires broadening the mandates of economic development and environmental ministries to allow for integrated consideration of the environment and economic development).
85. Kysar, supra note 8, at 2147 (stating that sustainable development proponents favor collective decision making).
86. See Bruce A. Ackerman & Richard B. Stewart, Reforming Environmental Law, 37 STAN. L. REV. 1333, 1335 (1985) (explaining that environmental law relies heavily upon uniform standards for industrial categories);
87. e.g., 42 U.S.C. §§ 7411(a), 7412(d), 7521 (2000).
88. But see 33 U.S.C. §1312 (2000);
89. David M. Driesen, Is Emissions Trading an Economic Incentive Program?: Beyond the Command and Control/Economic Incentive Dichotomy, 55 WASH. & LEE L. REV. 289,308 n.93 (1998) (arguing that commentators have exaggerated the extent of the uniform standard approach's use);
90. Driesen, supra note 3, at 36-37 (noting that the Kyoto Protocol does not impose uniform standards upon countries, but explaining why emissions trading increases cost effectiveness anyway).
91. See Jason S. Johnston, Tradable Pollution Permits and the Regulatory Game, in MOVING TO MARKETS IN ENVIRONMENTAL REGULATION: LESSONS FROM TWENTY YEARS OF EXPERIENCE 358 (Jody Freeman & Charles D. Kolstad eds., 2007) [hereinafter MOVING TO MARKETS] (stating that federal environmental regulations require uniform emission reductions for facilities of the same approximate age in an industry category).
92. E.g., id. at 353 ("[C]ommand-and-control" regulation has been "widely decried as inefficient.").
93. Unfortunately, regulators rarely have sufficient marginal cost information to tailor regulation to each facility's marginal control cost. Cf. EMISSIONS TRADINGFOR CLIMATE POLICY: U.S. AND EUROPEAN PERSPECTIVES at 3 (Bernd Hansjürgens ed., 2005) [hereinafter EMISSIONS TRADING] (explaining that regulators could tailor standards to each firm's marginal abatement cost, but pointing out the controversial nature of these adjustments).
94. I use the term "traditional regulation" to refer to performance standards, which require a particular pollution source to meet a quantitative limit for pollution outputs, and work practice standards, which dictate use of a particular technology or practice. Some writers use the term "command and control" regulation in the same way. Driesen, supra note 52, at 297 n.44.
95. I eschew use of this term, because it misleadingly suggests that performance standards dictate technological choices or that work practice standards dominate environmental law. See id. at 296-302.
96. See Geoffrey Bertram, Tradable Emission Permits and the Control of Greenhouse Gases, 28 J. DEV. STUD. 423, 425 (1992).
97. See id.
98. Stewart, supra note 17, at 190 (describing trading as automatically transferring resources from high-cost to low-cost sources);
99. Driesen, supra note 3, at 36 (illustrating trading's encouragement of cost-effective reduction shifts with a numerical example).
100. 42 U.S.C. §§ 7651-76510 (2000).
101. See Jacob Kreutzer, Cap and Trade: A Behavioral Analysis of the Sulfur Dioxide Emissions Market, 62 N.Y.U. ANN. SURV. AM. L. 125, 129 (2006) (calling the cap and trade program "a success by any measure");
102. Byron Swift, Command Without Control: Why Cap-and-Trade Should Replace Rate Standards for Regional Pollutants, 31 ENVTL. L. REP. 10330,10331-32 (2001) (explaining that the acid rain program produced early reductions and cheaper-than-expected costs).
103. See generally Driesen, supra note 52, at 314-17 & n. 131 (reviewing the history of trading prior to 1990).
104. 42 U.S.C. §§ 7651c(e), 7651d (2000).
105. 42 U.S.C. §7651b(b) (2000).
106. See Choi, supra note 5, at 890 (conceding, in the context of a fairly critical appraisal, that the acid rain program has achieved its goals);
107. Swift, supra note 60, at 10331-32 (discussing the reductions and cost savings).
108. See Choi, supra note 5, at 892-94 (claiming that trading has been used frequently in the United States and providing examples). While other emissions trading programs have failed because of monitoring and tracking difficulties, this Article will assume, perhaps unwisely, that the Kyoto trading programs will produce real emission reductions as planned.
109. See id. at 931-33 (explaining that the European Emissions Trading scheme does not require continuous emissions monitors in all cases). This assumption, whether realistic or not, makes it easier to address the Article's chief theoretical concern - the relationship between market liberalism and sustainable development.
110. DESSLER & PARSON, supra note 1, at 8-10 (explaining that carbon dioxide and water vapor are the principal greenhouse gases and that by the 1980s evidence had mounted that temperatures were warming);
111. Zachary Tyler, Massachusetts v. EPA: The D.C. Circuit's Failure to Extend the Clean Air Act to Greenhouse Gas Emissions, 36 ENVTL. L. REP. 10456, 10457 (2006) (explaining the link between fossil fuel combustion and carbon dioxide).
112. GERMAN ADVISORY COUNCIL ON GLOBAL CHANGE, THE FUTURE OCEANS - WARMING UP, RISING HIGH, TURNING SOUR 2 (2006) [hereinafter WBGU] ("There are indications that the continental ice sheets on Greenland and in the Antarctic are beginning to disintegrate.").
113. Id. at 1 (stating that "the sea level is rising ever faster");
114. INTERGOVERNMENTAL PANEL ON CLIMATE CHANGE, WORKING GROUP I, supra note 6, at 4 (finding that sea levels have risen by four to eight inches over the last 100 years).
115. WBGU, supra note 66, at 2 (stating that both "observed data" and "mathematical models" show that global warming boosts hurricanes' "destructive energy");
116. Kerry Emanuel, Increasing Destructiveness of Tropical Cyclones over the Past 30 Years, 436 NATURE 686 (2005) (showing a correlation between the increased destructiveness of tropical cyclones and average mean surface temperature).
117. See generally DESSLER & PARSON, supra note 1, at 83 (explaining that because the strength of tropical cyclones depends on sea surface temperatures, "there is [a] good basis" to expect more intense hurricanes and typhoons).
118. INTEGOVERNMENTAL PANEL ON CLIMATE CHANGE, WORKING GROUP II, Vulnerability to Climate Change and Reasons for Concern: A Synthesis, in CLIMATE CHANGE 2001: IMPACTS, ADAPTATION, AND VULNERABILITY ch. 19.3.4.1 (2001), available at http://www.grida.no/climate/ ipcc_tar/wg2/pdf/wg2TARchap19.pdf (discussing the vulnerability of Antigua, the Cook Islands, the Federated States of Micronesia, Kiribati, the Maldives, the Marshall Islands, Nevis, Tonga, and Tuvalu);
119. WBGU, supra note 66, at 2 ("Sea-level rise will lead to inundation of coasts and small island states ....").
120. See INTERGOVERNMENTAL PANEL ON CLIMATE CHANGE, CLIMATE CHANGE 2007: THE PHYSICAL SCIENCE BASIS: SUMMARY FOR POLICYMAKERS 7-9 (2007), available at http://www.grida.no/ (discussing links between global climate change and droughts, increased extreme weather, and sea level rise);
121. NICHOLAS STERN, THE ECONOMICS OF CLIMATE CHANGE: THE STERN REVIEW 74 (2007) (discussing the spread of infectious diseases);
122. Robert L. Glicksman, Global Climate Change and the Risks to Coastal Areas from Hurricanes and Rising Sea Levels: The Costs of Doing Nothing, 52 LOY. L. REV. 1127 (2006) (discussing violent weather events and other effects).
123. ELIZABETH KOLBERT, FIELD NOTES FROM A CATASTROPHE: MAN, NATURE, AND CLIMATE CHANGE 88 (2006) (reporting biologists' preliminary estimate of species extinction as between 15 percent and 37 percent);
124. see also IPCC WORKING GROUP II, supra note 69, ch. 19.2.2.2 (discussing elevational shifts in species and earlier timing of reproduction);
125. Shari L. Diener, Note, Ratification of Kyoto Aside: How International Law and Market Uncertainty Obviate the Current U.S. Approach to Climate Change Emissions, 47 WM. & MARY L. REV. 2089, 2093 (2006) (discussing studies predicting "devastating consequences" for polar bears and certain seals).
126. U.N. Conference on Env't & Dev., New York, U.S., May 29, 1992, Framework Convention on Climate Change, U.N. Doc. A/AC.237/18 (1992), 31 I.L.M. 849 [hereinafter FCCC].
127. See generally Daniel Bodansky, The United Nations Framework Convention on Climate Change: A Commentary, 18 YALE J. INT'L L. 451 (1993).
128. FCCC, supra note 72, art. 3, para. 4.
129. Id. art. 3, para. 1.
130. See generally EDITH BROWN WEISS, IN FAIRNESS TO FUTURE GENERATIONS: INTERNATIONAL LAW, COMMON PATRIMONY, AND INTERGENERATIONAL EQUITY (1989).
131. FCCC, supra note 72, art. 2.
132. Id. art. 3, para. 3.
133. Cf. Driesen, supra note 30, at 560-61 & n.67 (pointing out that cost-benefit proponents use the word "benefits" to describe averted harms).
134. See SANDS, supra note 45, at 365-66 (linking the joint implementation provision to the Framework Convention's language on cost effectiveness);
135. Driesen, supra note 3, at 15-18 (explaining that the language surrounding the cost effectiveness principle seems to qualify it, but that "cost effectiveness concerns have tended to dominate debates about implementation of the Climate Change Convention").
136. SANDS, supra note 45, at 360 (stating that the United States publicly opposed specific targets and timetables for greenhouse gas emission reductions);
137. see also James E. Beard, Note, An Application of the Principles of Sustainability to the Problem of Global Climate Change: An Argument for Integrated Energy Services, 11 J. ENVTL. L. & LITIG. 191, 203 (1996) (discussing the U.S. effort to defeat a proposal for a twenty percent emissions cut).
138. See Diener, supra note 71, at 2101 (attributing the inclusion of some trading provisions to "U.S. pressure").
139. See SANDS, supra note 45, at 365 (pointing out that the European Union and other countries supported a clear commitment to stabilizing greenhouse gas emissions at 1990 levels).
140. FCCC, supra note 72, art. 4, para. 2(b) (emphasis added);
141. see PRUE TAYLOR, AN ECOLOGICAL APPROACH TO INTERNATIONAL LAW 332 (1998) (describing this compromise as a "watering down of obligations" achieved through a U.S. threat to boycott the talks).
142. See Bodansky, supra note 72, at 515-17 (describing this clause as establishing a "quasi-target").
143. See Driesen, supra note 3, at 28 (explaining that the "joint implementation" language suggests authorization of trading, but could also be interpreted as contemplating one country helping another achieve reductions without credit sales).
144. See DESSLER & PARSON, supra note 1, at 14 (discussing the Clinton Administration's initial reluctance to accept mandatory emission reductions).
145. See id. at 15 (describing the tension between the United States and the EU on the liberality of trading);
146. Axel Michaelowa & Sonja Butzengeiger, EU Emissions Trading: Navigating Between Scylla and Charybdis, 5 CLIMATE POL'Y 1, 2 (2005) (noting that the EU opposed international trading in the "run-up" to the Kyoto conference).
147. Joby Warrick, Gore Urges Resolution at Climate Talks with Summit in Disarray, Vice President Prods U.S. Negotiators to Bridge Gaps, WASH. POST, Dec. 8, 1998, at A1 (describing the U.S. compromise accepting a seven percent reduction target);
148. see also James H. Searles, Analysis of the Kyoto Protocol to the U.N. Framework Convention on Climate Change, 21 INT'L ENV'T REP. 131,133 (Feb. 4,1998) (stating that the United States demanded emissions trading in exchange for legally binding emissions reductions).
149. Kyoto Protocol, supra note 2, art. 3(1) (requiring industrialized countries to reduce their emissions by the amounts assigned in annex B "with a view to reducing their overall emissions of such gases by at least 5 per cent below 1990 levels");
150. see also Kyoto Parties End Meetings with Consensus for Avoiding 'Gap' in Post-2012 Reductions, 37 ENVTL. REP. 1154 (2006) ("[The Kyoto Protocol] requires 36 industrialized countries ... to collectively reduce carbon dioxide emissions by about 5 percent below 1990 levels . . . .").
151. See LEGAL ASPECTS OF IMPLEMENTING THE KYOTO PROTOCOL MECHANISMS: MAKING KYOTO WORK 175 (David Freestone & Charlotte Streck eds., 2005) [hereinafter KYOTO MECHANISMS] (introducing Joint Implementation, Emissions Trading, and the Clean Development Mechanism as the three "market-oriented mechanisms" provided for in the Kyoto Protocol);
152. SANDS, supra note 45, at 372 (listing the flexibility mechanisms as "emissions trading, joint implementation, and the [Clean Development Mechanism]");
153. cf. Stewart, supra note 17, at 238 (interpreting the Kyoto Protocol as providing four different economic incentive systems).
154. Kyoto Protocol, supra note 2, art. 16.
155. Id. art. 6.
156. Id. art. 12.
157. Id. art. 12(2). The CDM also aims to contribute to achieving the Framework Convention's objective of avoiding dangerous climate change and assisting developed countries in complying with their emission reduction obligations.
158. Id.
159. See generally KYOTO MECHANISMS, supra note 90, at 71-104.
160. Id. at 198-202 (describing the role of Designated Operational Entities).
161. Id. at 213-19 (explaining that the role of the Designated National Authority includes review for sustainability).
162. Id. at 197, 202 (stating that the Executive Board reviews projects for environmental integrity).
163. See id. at 370 (stating that Bush's repudiation of the Kyoto Protocol cast its passage into doubt, because it required virtually all other Annex I parties to ratify the Protocol to bring it into force);
164. George W. Bush, U.S. President, Press Conference at the White House (Mar. 29, 2001), available at http://www.whitehouse.gov/news/releases/2001/03/ 20010329.html (explaining Bush's concerns about cost and the ineffectiveness of the agreement). Congress has also not been forthcoming with U.S. support for international climate change agreements.
165. See, e.g., S. Res. 98,105th Cong. (1997) (enacted) (disapproving of climate change agreements that do not mandate developing country emission reductions and expressing cost concerns).
166. See DESSLER & PARSON, supra note 1, at 16 (noting that the Kyoto Protocol entered into force on February 16, 2005).
167. Kirsten H. Engel, Mitigating Global Climate Change in the United States: A Regional Approach, 14 N.Y.U. ENVTL. L.J. 54, 55 (2005) (noting "the absence of the federal government's participation in the Kyoto Protocol");
168. see also Kirsten H. Engel & Scott R. Saleska, The Subglobal Regulation of the Global Commons: The Case of Climate Change, 32 ECOLOGY L.Q. 183, 186 (2005) (pointing out that the U.S. federal government has "eschewed substantive regulation in favor of voluntary reduction efforts and a continuation of scientific research on climate");
169. cf. Gary C. Bryner, Carbon Markets: Reducing Greenhouse Gas Emissions Through Emissions Trading, 17 TUL. ENVTL. L.J. 267, 273 (2004) (describing the Bush Administration's plan to address climate change without meeting Kyoto targets);
170. Deborah Keeth, Note, The California Climate Law: A State's Cutting Edge Efforts to Achieve Clean Air, 30 ECOLOGY L.Q. 715 (2003) (discussing California climate change law).
171. See Choi, supra note 5, at 952 (stating that the European Emissions Trading Scheme "will provide important lessons to the rest of the world," including the United States).
172. See Michael A. Mehling, Emissions Trading and National Allocation in the Member States - An Achilles ' Heel of European Climate Policy?, 5 Y.B. EUR. ENVTL. L. 113, 118-19 (2005) (describing emissions trading as something "[1]argely adopted in response" to U.S. "pressure").
173. See id. at 123, 127 (describing the EU decision to adopt trading after "notoriously" opposing it as a "remarkable shift" and noting that it moved from proposal to adoption in "less than four years").
174. Council Directive 2003/87,2003 O.J. (L 275) (EC).
175. See generally Bent O. Mortensen, The EU Emission Trading Directive, 14 EUR. ENVTL. L. REV. 275 (2004) (discussing the directive and how it helps the European Union meet Kyoto Protocol objectives);
176. Rie Watanabe & Guy Robinson, The European Union Emissions Trading Scheme, 5 CLIMATE POL'Y 10 (2005) (explaining the particulars of the scheme).
177. Council Directive 2004/101, pmbl., 2004 O.J. (L 338) 18 (EC) [hereinafter Linking Directive];
178. Watanabe & Robinson, supra note 105, at 12-13.
179. Linking Directive, supra note 106, at 18.
180. Reimund Schwarze, Incentives to Adopt New Abatement Technology and US-European Regulatory Cultures, in EMISSIONS TRADING, supra note 55, at 58 (likening the EU to a hesitant bride expecting a baby after the father has left).
181. See Mehling, supra note 103, at 121-22 (describing legislation on energy efficiency, renewable energy, energy taxation, funding and promotion schemes, voluntary agreements with industry, and monitoring of greenhouse gas emissions as following in the wake of a Europe Commission decision to make climate change a priority in 1992).
182. Commission of the European Communities, Commission Staff Working Document: The Share of Renewable Energy in the EU: Country Profiles: Overview of Renewable Energy Sources in the Enlarged EU, at 3, COM (2004) 366 final (May 26, 2004) (discussing the EU's target of a twelve percent share of renewable energy consumption by 2010);
183. Commission of the European Communities, The Share of Renewable Energy in the EU: Commission Report in Accordance with Article 3 of Directive 2001/77/EC, Evaluation of the Effect of Legislative Instruments and Other Community Policies on the Development of the Contribution of Renewable Energy Resources in the EU and Proposals for Concrete Actions, at 12, COM (2004) 366 final (May 26, 2004) [hereinafter 2004 Commission Energy Evaluation] (discussing an "indicative target" of twenty-two percent renewable electricity generation by 2010 for the EU fifteen).
184. BARRY G. RABE, RACE TO THE TOP: THE EXPANDING ROLE OF U.S. STATE RENEWABLE PORTFOLIO STANDARDS 3-4 (2006) (listing states and countries that have adopted renewable portfolio standards);
185. Andrew Ford, Klaus Vogstad & Hilary Flynn, Stimulating Price Patterns for Tradable Green Certificates to Promote Electricity Generation from Wind, 35 ENERGY POL'Y 91, 92-94 (2007) (describing state programs and mentioning the European countries employing similar programs);
186. Kevin S. Golden, Senate Bill 1078: The Renewable Portfolio Standard-California Asserts its Renewable Energy Leadership, 30 ECOLOGY L.Q. 693, 699 (2003) (describing renewable energy portfolio standards as requirements that "retail electricity sellers" include "a determined percentage of renewable energy sources" in their "resource portfolios");
187. see Commission of the European Communities, Communication from the Commission: The Support of Electricity from Renewable Energy Sources, at 4-5, COM (2005) 627 final [hereinafter Renewables Support] (listing countries employing green certificate systems, which can be a form of renewable portfolio standards);
188. Espey, supra note 5, at 560 (explaining that the term renewable portfolio standard comes from U.S. practice, but that other countries employ different names to describe similar programs).
189. See generally NANCY RADER& SCOTT HEMPLING, THE RENEWABLES PORTFOLIO STANDARD: A PRACTICAL GUIDE (2001) (discussing how decision makers can use renewable portfolio standards to achieve policy goals).
190. N.H. VAN DER LINDEN, M.A. UYTERLINDE, C. VROLIJK, L.J. NILSSON, J. KHAN, K. ÅSTRAND, K. ERICSSON & R. WISER, REVIEW OF INTERNATIONAL EXPERIENCE WITH RENEWABLE ENERGY OBLIGATIONS SUPPORT MECHANISMS 49 (2005) (noting that suppliers usually purchase tradable renewable energy credits from suppliers of renewable energy in order to meet their own compliance obligations);
191. RYAN WISER & OLE LANGNISS, THE RENEWABLES PORTFOLIO STANDARD IN TEXAS: AN EARLY ASSESSMENT 15 (2001), http://www.rff.org/Documents/RFFRPT-Renewables.pdf (stating that certificate trades "may not be essential to effective design" of a renewable portfolio standard);
192. Engel, supra note 5, at 268 n.72 (noting that only one state, Arizona, currently uses tradable renewable power credits);
193. Espey, supra note 5, at 557 (describing "certificates" as a means of proving compliance with a renewable portfolio standard);
194. Ford et al., supra note 111, at 94 (characterizing tradable green certificates markets as "quite new");
195. Golden, supra note 111, at 699-700. Espey further explains that because a utility can acquire a certificate without acquiring the underlying power, the certificate system allows a utility to participate in financing renewable energy without acquiring a production facility or obtaining the renewable power.
196. Espey, supra note 5, at 560. This separation can both simplify enforcement and provide flexibility for those complying with a renewables portfolio obligation.
197. See generally RADER & HEMPLING, supra note 111, at 55-71 (discussing trading's potential uses). While the green certificates have a number of advantages, the evidence suggests that the quotas themselves, not the trading, have spurred the technological development.
198. Renewables Support, supra note 111, at 4 (noting that most EU member states employ feed-in tariffs);
199. Ford et al., supra note 111, at 94 n. 12;
200. see also KAREN PALMER & DALLAS BURTRAW, ELECTRICITY, RENEWABLES, AND CLIMATE CHANGE: SEARCHING FOR A COST- EFFECTIVE POLICY 8-9 (2004), http://www.rff.org/Documents/RFF- RPT-Renewables.pdf (discussing feed-in tariffs' use in several European countries). Feed-in tariffs constitute a subsidy and as such bear some similarity to the Federal Production Tax Credit.
201. RENEWABLE ENERGY CERTIFICATES SYSTEM INTERNATIONAL, THE USE OF GUARANTEE OF ORIGIN 24-25 (2005), http://www.recs.org/doctree/RECS%20Intemational/ 05%20Evaluation %20Report.pdf (explaining that a fixed feed-in tariff introduces a "market distortion").
202. See PALMER & BURTRAW, supra note 113, at 3 (discussing state subsidies and funded by a surcharge on electricity purchases and federal renewable energy production tax credits);
203. VAN DER LINDEN ET AL., supra note 112, at 11-12 (discussing feed-in tariffs, a tendering system with government contracts for renewable power, financial incentives, and tax incentives);
204. Lene Nielsen & Tim Jeppesen, Tradable Green Certificates in Selected European Countries-Overview and Assessment, 31 ENERGY POL'Y 3, 5 (2003) (noting that all countries planning green certificate programs except the Netherlands "envisage . . . politically determined demand").
205. See generally Wiener, supra note 43, at 706-713 (developing the distinction between price and quantity instruments with examples).
206. Commission Proposal for a Council Directive on Passenger Car Related Taxes, at 7-8, COM (2005) 261 final (July 5, 2005), available at http://ec.europa.eu/environment/co2/pdf/ taxation_com_2005_261 .pdf.
207. See Choi, supra note 5, at 896-97 (discussing "green taxes" in the European energy sector);
208. David M. Driesen, Economic Instruments for Sustainable Development, in ENVIRONMENTAL LAW FOR SUSTAINABILITY: A READER 295 (Stepan Wood & Benjamin J. Richardson eds., 2006) (discussing taxes touted as carbon taxes in several European countries).
209. Engel, supra note 101, at 54 (describing state and local government as "taking the lead in addressing global climate change");
210. Engel & Saleska, supra note 101, at 184-86 (stating that "at least half the states" have passed legislation addressing global wanning).
211. See generally BARRY G. RABE, STATEHOUSE AND GREENHOUSE: THE EMERGING POLITICS OF AMERICAN CLIMATE CHANGE POLICY (2004).
212. Engel, supra note 101, at 65-68 (discussing various regional initiatives);
213. Engel & Saleska, supra note 101, at 212-13 (discussing vehicle emissions standards and renewable energy programs).
214. See David M. Driesen, The Changing Climate for United States Law, 1 CARBON & CLIMATE L. REV. 35,36 (2007) (stating that "a number of bills pending in Congress... use the emissions trading approach");
215. .see, e.g., Climate Stewardship and Innovation Act of 2007, S. 280, 110th Cong. (2007); S. 3698, 109th Cong. (2006).
216. CAPOOR & AMBROSI, supra note 7, at 33 (stating that fifty-one percent of the projects generating transactions have involved energy efficiency or renewable energy).
217. Michael Wara, Is the Global Carbon Market Working?, 445 NATURE 595, 596 (2007) (showing that waste gas projects account for the majority of credits claimed for projects "in the pipeline");
218. Baumert, supra note 3, at 386 (noting that "gas capture/destruction projects" account for "sixty-six percent of expected emissions reduction credits").
219. Robin Lancaster, Beyond All Expectation, CARBON FIN., May 2006, at 15 (stating that HFC23 reductions accounted for fifty-eight percent of the market volume between January 2005 and March 2006);
220. Joergen Fenhann & Adrian Lema, UNEP Risoe Center: Content of CDM/JI Pipeline: CDM Projects by Type (July 2007), http://cdmpipeline.org/ cdm-projects-type.htm (showing that HFC projects generated forty-nine percent of the credits).
221. Joergen Fenhann, UNEP Risoe Center: CDM/JI Pipeline: Analysis and Database: CDM Pipeline Overview (July 2007), http://cdmpipeline.org/ publications/CDMpipeline.xls [hereinafter Fenhann CDM Pipeline];
222. see also UNEP RISOE CENTER: GUIDANCE TO THE CDM/JI 1 (2006), http://cdmpipeline.org/publications/ GuidanceCDMpipeline.pdf [hereinafter CDM/JI GUIDE] (explaining that data comes from the UNFCC homepage located at http://cdm.unfccc.int/index.html, and also that project design documents are also available there).
223. Fenhann CDM Pipeline, supra note 124, at tbl.10 (providing analysis of all CDM/JI projects in the pipeline). The "other" category in this chart and the subsequent JI chart denotes technologies that are not known to involve end-of-the-pipe, renewable efficiency, or energy efficiency technologies. The "other" category includes some projects that might be properly viewed as end-of-the-pipe projects, so that the percentage of end-of-the-pipe credits may be understated. The finding that renewables projects generate only a modest percentage of the total credits is broadly consistent with other analysts' conclusions.
224. Lars Friberg, Gudrun Benecke & Miriam Schröder, KyotoPlus - Papers: The Role of the Clean Development Mechanism - Now and in the Future 11 (KyotoPlus - Escaping the Climate Trap 2006), http://www.sfbgovernance.de/ teilprojekte/projektbereich_d/d3/friberg_etal.pdf (noting that renewables have seen a recent increase only because developers are beginning to run out of viable end-of-the-pipe projects);
225. e.g., Michael Wara, Measuring the Clean Development Mechanism's Performance and Potential 23 (The Program on Energy and Sustainable Dev. at Stan. Univ., Working Paper No. 56, 2006), available at http://iis-db.stanford.edu/pubs/21211/Wara_CDM.pdf (stating that renewables have generated eighteen percent of the total credits).
226. Lucy Mortimer, An unCERtain Path?, CARBON FIN., Apr. 2006, at 14, available at http://www.carbon-financeonline.com (noting that many projects may not make it through the registration process because of financial problems, methodological problems, and uncertainty about the post-2012 carbon market);
227. Ben Pearson, Market Failure: Why the Clean Development Mechanism Won't Promote Clean Development, 15 J. CLEANER PROD. 247, 248 (2007) (noting that many renewables projects may not meet the Kyoto Protocol's "additionality" criterion). Similarly, the smaller joint implementation mechanism pipeline's renewable energy credits constitute about nineteen percent of total projected credits.
228. KARAN CAPOOR & PHILIPPE AMBROSI, STATE AND TRENDS OF THE CARBON MARKET 2007 28 (2007), http://carbonfinance.org/docs/Carbon_Trends_2007-_FINAL_-_May_2.pdf;
229. Fenhann CDM Pipeline, supra note 124, at tbl.10 (showing that projected renewable energy credits will reach twenty-five percent in 2012). Furthermore, renewables project developers may face greater risks of having their projects' emission credits disapproved or reduced than developers of cheaper projects.
230. JANE ELLIS & SAMI KAMEL, OVERCOMING BARRIERS TO CLEAN DEVELOPMENT MECHANISM PROJECTS 10 (2007), http://www.oecd.org/dataoecd/51/ 14/38684304.pdf;
231. Joergen Fenhann, UNEP Risoe CDM/JI Pipeline: Analysis and Database: JI Pipeline Overview (July 2007), http://cdmpipeline.org/publications/JIpipeline. xls. Conversely, analysts expect end-ofthe-pipe control's share of future project credits to decline to about forty percent of the total.
232. E.g., JIM VALLETTE, DAPHNE WYSHAM & NADIA MARTÍNEZ, A WRONG TURN FROM RIO: THE WORLD BANK'S ROAD TO CLIMATE CATASTROPHE 9-10 (2004), http://www.seen.org/ PDFs/ Wrong_turn_Rio.pdf (describing these projects and their effects).
233. Contra The World Bank Carbon Finance Unit, Brazil: Plantar Sequestration and Biomass Use (2006), http://carbon finance.org/Router.cfm?Page= Projport&ProjID=9600#DocsList (suggesting that the Plantar project will lessen ecological destruction). The point here is not to determine who is right about project disputes, but simply to characterize the types of concerns that come up in public comment processes on CDM projects.
234. See, e.g., CDM WATCH, THE WORLD BANK AND THE CARBON MARKET: RHETORIC AND REALITY,23-25, available at http://www.cdmwatch.org/files/ World%20Bank%20paper%20final.pdf, at (describing the reasons for rejection of some CDM projects).
235. David M. Driesen, Air Pollution, in STUMBLING TOWARD SUSTAINABILITY, supra note 48, at 257-61 (discussing Agenda 21's provisions favoring renewable energy and energy efficiency as part of sustainable development);
236. cf. U.N. Conference on Env't & Dev., Rio de Janerio, Brazil, June 3-14, 1992, Agenda 21, 9.9, U.N. Doc. A/CONF.151/26 (calling for a greater need to rely on renewable energy sources).
237. James W. Moeller, Of Credits and Quotas: Federal Tax Incentives for Renewable Resources, State Renewable Portfolio Standards, and the Evolution of Proposals fora Federal Renewable Portfolio Standard, 15 FORDHAM ENVTL. L.J. 69, 73-77 (2004) (explaining that a federal requirement that electric utilities purchase power from renewable energy sources played an important role in expanding renewable power generation);
238. e.g., VAN DER LINDEN ET AL., supra note 112, at 38 (suggesting that a number of policy instruments have contributed to increased renewable energy production in Sweden).
239. Contra Choi, supra note 5, at 891 n.86 (claiming that the acid rain program has discouraged use of renewable energy, in spite of the establishment of reserve allowances to provide incentives to use it).
240. 2004 Commission Energy Evaluation, supra note 110, at 19 (noting that wind power grew by twenty-three percent in 2003, exceeding the EU's wind target);
241. Ford et al., supra note 111, at 92 n.4 (explaining that the Texas renewable portfolio standard produced the "Texas Wind Rush," the installation often new wind projects in 2001 producing 930 megawatts of power);
242. Frederic C. Menz & Stephan Vachon, The Effectiveness of Different Policy Regimes for Promoting Wind Power: Experiences from the States, 34 ENERGY POL'Y 1786 (2006) (finding that renewable portfolio standards have stimulated increased production of wind power).
243. 2004 Commission Energy Evaluation, supra note 110, at 19 (finding that wind costs have fallen by fifty percent over the last fifteen years);
244. Jeffrey Greenblatt, Samir Succar, David C. Denkenberger, Robert H. Williams & Robert H. Socolow, Baseload Wind Energy: Modeling the Competition Between Gas Turbines and Compressed Air Energy Storage for Supplemental Generation, 35 ENERGY POL'Y1474,1474 (2007) (attributing a thirty percent annual increase in installed wind capacity to a "twofold drop in capital costs between 1992 and 2001" and "government initiatives").
245. 2004 Commission Energy Evaluation, supra note 110, at 20-21.
246. See Bernardo Barreto & Socrates Kypreos, Emissions Trading and Technology Deployment in an Energy-Systems "Bottom-up " Model with Technology Learning, 158 EUR. J. OPERATIONAL RES. 243, 246-48 (2004) (estimating an eighty-six percent progress ratio for solar photovoltaics, representing the rate of cost decline per doubling of production);
247. Mona Hymel, The United States ' Experience with Energy-Based Tax Incentives: The Evidence Supporting Tax Incentives for Renewable Energy 3-8 (Ariz. Legal Studies, Discussion Paper No. 06-21, 2006), http://www.ssrn.com/ abstract=896987 (discussing the United States' subsidies for fossil fuels and renewable energy);
248. Bert Metz & Detlef van Vuuren, How, and at What Costs, Can Low-Level Stabilization Be Achieved? - An Overview, in AVOIDING DANGEROUS CLIMATE CHANGE 339 (Hans Joachim Schellnhuber, Wolfgang Cramer, Nebojsa Nakicenovic, Tom Wigley & Gary Yohe eds., 2006) (noting that renewable energy today represent one of the most expensive options for greenhouse gas mitigation).
249. Plugging Into the Future, THE ECONOMIST, June 10, 2006, at 30 (discussing the fuel efficiency gains of the Toyota Prius and other hybrid vehicles).
250. See CAL. CODE REGS. tit. 13, § 1960.1 (2006).
251. See Motor Vehicles Mfrs. Ass'n v. N. Y. State Dep't of Envtl. Conservation, 17 F.3d 521, 528 (2d Cir. 1994) (describing the fleet average approach), aff'd, 79 F.2d 1298 (2d Cir. 1996).
252. Keeth, supra note 101, at 726-27 (explaining how manufacturers can comply with averaging requirements that relaxed the technological demands in the original program's zero emission vehicle requirement).
253. CAL. CODE REGS. tit. 13, § 1961.1(a)-(g) (2006).
254. Keith Bradsher & David Barboza, Pollution from Chinese Coal Casts Shadow Around Globe, N. Y. TIMES, June 11, 2006, at Al (noting that vehicles sold in China must meet stricter fuel efficiency standards than those of the United States).
255. David S. Loughran & Jonathan Kulick, Demand-Side Management and Energy Efficiency in the United States, 25 ENERGY J. 19, 34 (2004) (noting that between 1989 and 1999, utilities reported on average 180,000 MWh annual energy efficiency savings from demand-side management).
256. Robert R. Nordhaus & Kyle W. Danish, Assessing the Options for Designing a Mandatory U.S. Greenhouse Gas Reduction Program, 32 B.C. ENVTL. AFF. L. REV. 97, 107 (2005) (noting that the Department of Energy's appliance efficiency program has saved about one-percent of total U.S. energy use).
257. See generally Ralph C. Cavanagh, Least-Cost Planning Imperatives for Electric Utilities and Their Regulators, 10 HARV. ENVTL. L. REV. 299, 300-01 (1996) (justifying such a comparison, explaining how to carry it out, and surveying state programs).
258. Loughran & Kulick, supra note 141, at 25 (showing that generating a kWh costs more than twice as much as saving a kWh through energy efficiency).
259. Cf. Choi, supra note 5, at 951 (arguing that "addressing global climate change requires fundamental changes in human behavior").
260. Richard B. Stewart, Controlling Environmental Risks Through Economic Incentives, 13 COLUM. J. ENVTL. L. 153, 155,166 (1988) (noting that technology-based regulation requires installation of "pollution control" technology, while "economic incentives" encourage "new
261. products or production technologies"); e.g., Richard B. Stewart, United States Environmental Regulation: A Failing Paradigm, 15 J.L. & COM. 585, 592 (1996) (contrasting the "existing technology-based system['s]" emphasis on "end of pipe" controls with trading's encouragement of "process changes and conservation").
262. Compare Michaelowa & Butzengeiger, supra note 87, at 3 (suggesting that renewables policies might be justified without carbon benefits because of falling costs over time) with Jos Sijm, The Interaction Between the EU Emissions Trading Scheme and National Energy Policies, 5 CLIMATE POL'Y 79, 94 (2005) (suggesting that energy security, equity, "raising fiscal resources," ancillary environmental benefits, and dynamic efficiency may justify energy policy, but that allowance trading makes it unnecessary for carbon-reduction purposes).
263. DRIESEN, supra note 34, at 75-77;
264. David M. Driesen, Design, Trading, and Innovation, in MOVING TO MARKETS, supra note 53, at 437-38. While I frame much of my argument about spillover neglect in terms of technological innovation, market-neglected positive spillovers can arise from high quality non-innovative technology as well.
265. U.N. Conference on Env't & Dev., Rio de Janerio, Brazil, June 3-14, 1992, Agenda 21, ¶ 9.9, U.N. Doc. A/CONF. 151.26 (Aug. 12 1992) (calling for increased use of renewable energy and energy efficiency); BRUNDTLAND REPORT, supra note 9, at 188 (stating that the development of renewable energy be given the "highest priority").
266. Herman E. Daly, Sustainable Growth: An Impossibility Theorem, in VALUING THE EARTH 271 (Herman E. Daly & Kenneth N. Townsend eds., 1992).
267. Id. at 267-68.
268. Id. at 268.
269. See DRIESEN, supra note 34, at 89 (explaining the link between Daly's idea of reduced through-put and technological innovation).
270. Interview with Lewis Milford, Clean Air Group, Clean Energy Group (July 5, 2006) (claiming that experts agree that the world needs significant innovation in how energy is produced to adequately address climate change). See, e.g., DESSLER & PARSON, supra note 1, at 102-06 (discussing technological options to address climate change with emphasis on options involving significant technological changes); Baumert, supra note 3, at 388 (stating that effectively addressing climate change requires "large-scale technological and behavioral changes").
271. See DESSLER & PARSON, supra note 1, at 155-58 (suggesting that avoiding a three degrees Celsius temperature rise may require a forty percent cut from 2010 levels by 2050 and more than a sixty percent cut by 2100);
272. James E. Hansen, A Slippery Slope: How Much Global Warming Constitutes "Dangerous Anthropogenic Interference," 68 CLIMATE CHANGE 269, 277 (2005) (stating that a two degrees Celsius temperature rise "almost surely takes us well into the realm of dangerous" climate change);
273. Malte Meinshausen, What Does a 2°C Target Mean for Greenhouse Gas Concentrations? A Brief Analysis Based on Multi-Gas Emissions Pathways and Several Climate Sensitivity Uncertainty Estimates, in AVOIDING DANGEROUS CLIMATE CHANGE, supra note 134, at 269-70 (estimating that limiting temperature rise to less than two degrees Celsius likely requires a fifty-five percent reduction below 1990 emissions levels by 2050).
274. Bradsher & Barboza, supra note 140 (explaining that Chinese coal-fired power plants will probably increase greenhouse gas emissions by five times the amount of cuts from Kyoto and that India is following suit).
275. James E. Hansen, Global Warming: Is There Still Time to Avoid Disastrous Human-Made Climate Change? i.e. Have We Passed a Tipping Point?, 26-29 (2006), http://www.columbia.edu /~jehl/nas_24april2006.pdf (providing maps of areas that would probably be under water if temperature increased by three degrees Celsius).
276. See generally Choi, supra note 5, at 872 (claiming that development of renewable energy and increased energy efficiency can move the world toward sustainable development).
277. KOLBERT, supra note 71, at 168.
278. Brett M. Frischman & Mark A. Lemley, Spillovers, 107 COLUM. L. REV. 257, 258-61 (2007).
279. POSNER, supra note 16, at 123 (commenting that uncertainty lies at the "core" of technological innovation, because "[scientific progress is unpredictable ").
280. See id. at 123-24 (explaining that third parties' ability to use information makes it difficult for inventors to keep all the value their inventions create);
281. Gregory N. Mandel, Promoting Environmental Innovation and Intellectual Property Innovation: A New Basis for Patent Rewards, 24 TEMPLE J. ENVTL. L. & TECH. 51, 56 (2006) (explaining that if a person "builds a better mousetrap," others may copy it).
282. POSNER, supra note 16, at 283 (explaining that intellectual property law allows innovators to capture some, but "not all," of innovation's value).
283. Id. at 282-93 (explaining that both copyright and patent law create a "semicommons" combining private property rights and commons elements).
284. Id. at 291 (explaining that patent law "requires the patent owner to teach the public how to make and use the invention").
285. Id. at 292.
286. See id. at 282-293 (explaining why these features and others promote positive spillovers).
287. See generally, Steffen Kallbekken & Nathan Rive, Why Delaying Emissions Cuts is a Gamble, in AVOIDING DANGEROUS CLIMATE CHANGE, supra note 134, at 315 (explaining that technological change can influence pollution abatement's cost and feasibility).
288. See Eban Goodstein, Prices Versus Policy: Which Path to Clean Technology, in THE LONG-TERM ECONOMICS OF CLIMATE CHANGE: BEYOND A DOUBLING OF GREENHOUSE GAS CONCENTRATIONS 225 (Darwin C. Hall & Richard B. Howarth eds., 2001) (identifying early investment in clean technology with avoidance of "ongoing residual damage from carbon emissions").
289. Cf Choi, supra note 5, at 951 (claiming that recent crude oil prices indicate that "fossil fuels have already begun to be in short supply").
290. See Goodstein, supra note 169, at 233 (explaining in detail why earlier investment in clean technology reduces costs).
291. See Douglas A. Kysar, Some Realism About Environmental Skepticism: The Implications of Bjorn Lomborg's The Skeptical Environmentalist for Environmental Law and Policy, 30 ECOLOGY L. Q. 223, 263 (2003) (noting incidental reductions in sulfur dioxide, nitrogen oxides, volatile organic compounds, and particulates due to efforts to reduce climate change);
292. cf. Luis Mundaca & Hakan Rodhe, CDM Wind-Energy Projects: Exploring Small Capacity Thresholds and Low Performances, 4 CLIMATE POL'Y 399, 405 (2005) (describing how wind energy reduces harmful sulfur dioxide emissions to zero).
293. Cf. U.N. Conference on Env't & Dev., Rio de Janerio, Brazil, June 3-14, 1992, Rio Declaration on Env't and Dev., princ. 1, U.N. Doc. A/CONF.151/26 (Aug. 12, 1992) (recognizing a human right to a healthy life based on the centrality of human beings to sustainable development).
294. See Palmer & Burtraw, supra note 113, at 62 ("[providing a jump start to technology learning" can yield significant future benefits).
295. See LINDA NULL & JULIA LOBUR, THE ESSENTIALS OF COMPUTER ORGANIZATION AND ARCHITECTURE 19-25 (2d ed. 2006) (explaining that the first supercomputer built with transistors cost $10 million, but that integrated circuits and then microprocessors to miniaturize transistors dropped the price and made personal computers possible);
296. Rudi Volti, A Century of Automobility, 37 TECH. & CULTURE 663, 667, 670 (1996) (describing cars' origins as luxury goods and the assembly line's role in reducing prices);
297. cf. DAVID A. HOUNSHELL, FROM THE AMERICAN SYSTEM TO MASS PRODUCTION, 1800-1932, 218, 241 (1984) (while Ford had experience making luxury cars, he credits observation of other production processes as the source of the idea of the assembly line to produce automobiles). See generally Sabine Messner, Endogenized Technological Learning in an Energy Systems Model, 7 J. Evolutionary Econ. 291, 293 (1997) (describing "learning by doing" as "among the best empirically corroborated phenomena characterizing technological change in industry.").
298. Barreto & Kypreos, supra note 134, at 245-46 ("learning.. .plays an important role" in improving technologies' cost and performance).
299. See Patrick Matschoss & Heinz Welsch, International Emissions Trading and Induced Carbon-Saving Technological Change: Effects of Restricting the Trade in Carbon Rights, 33 ENVTL. & RESOURCE ECON. 169, 172 (2006) (associating learning by doing with assuming that learning comes from production).
300. See CHRISTOPHER HARMON, EXPERIENCE CURVES OF PHOTOVOLTAIC TECHNOLOGIES 3 (2000), available at http://www.iiasa.ac.at/Publications/Documents/IR-00-014.pdf (photovoltaic modules experienced a 20% cost decline with each doubling of installed capacity on average); Michaelowa & Butzengeiger, supra note 87, at 3 (most forms of renewable energy are "undergoing a strong cost decrease");
301. Palmer & Burtraw, supra note 113, at 17, 51-52 (explaining that the potential for learning by doing is high for renewable energy).
302. Cf. DRIESEN, supra note 34, at 83-85 (providing a numerical example to illustrate how long-term and short-term costs may diverge).
303. See generally Kysar, supra note 172, at 266 (stating that economic models used to estimate the costs and benefits of mitigating climate change "use a mathematical discount rate ... to significantly reduce" future harms' value);
304. Richard L. Revesz, Environmental Regulation, Cost-Benefit Analysis, and the Discounting of Human Lives, 99 COLUM. L. REV. 941 (1999);
305. Kenneth Arrow, William R. Cline, Karl-Göran Maler, Mohan Munasinghe, Rafael Squitieri & Joeseph E. Stiglitz, Intertemporal Equity, Discounting, and Economic Efficiency, in CLIMATE CHANGE 1995, supra note 5, at 125.
306. POSNER, supra note 16, at 151-52 (recognizing that application of a discount rate tends to "obliterate" future generations' interests in contexts like that of global warming because the discounting drastically reduces valuation of future harms).
307. See John L. Donohue, Why We Should Discount The Views of Those Who Discount Discounting, 108 YALE L. J. 1901, 1905 (1999) (a person would prefer saving ten lives today over saving ten lives seven years from now).
308. See Douglas A. Kysar, Climate Change, Cultural Transformation, and Comprehensive Rationality, 31 B. C. ENVTL. AFF. L. REV. 555, 578-85 (2004) (discussing moral issues with discounting in the climate change context); Kysar, supra note 8, at 2134 (noting that sustainable development proponents do not accept existing preferences as immutable);
309. Kysar, supra note 172, at 266-67 (questioning the "moral basis" for discounting human lives saved and other future benefits of climate change policies).
310. See generally David A. Dana, A Behavioral Economic Defense of the Precautionary Principle, 97 Nw. U. L. REV. 1315 (2003) (defending the precautionary principle as a means of correcting for cognitive bias favoring short-term cost avoidance over long-term risk avoidance);
311. Daniel A. Farber & Paul A. Hemmersbaugh, The Shadow of the Future: Discount Rates, Later Generations, and the Environment, 46 VAND. L. REV. 267 (1993);
312. Lisa Heinzerling, Discounting, 108 YALE L. J. 1911 (1999); Edith Brown Weiss, The Planetary Trust Conservation and Intergenerational Equity, 11 ECOLOGY L. Q. 495 (1984).
313. Marc Ringel, Fostering the Use of Renewable Energies in the European Union: The Race Between Feed-in Tariffs and Green Certificates, 31 RENEWABLE ENERGY 1, 4-5 (2006) (discussing these factors as aims of EU policy on renewables).
314. See, e.g., Bruce A. Ackerman & Richard B. Stewart, Reforming Environmental Law: The Democratic Case for Market Incentives, 13 COLUM. J. ENVTL. L. 171, 183 (1988);
315. Robert W. Hahn and Robert N. Stavins, Incentive-Based Environmental Regulation: A New Era From an Old Idea?, 18 ECOLOGY L. Q. 1, 13 (1991);
316. Robert N. Stavins, Policy Instruments for Climate Change: How Can National Governments Address a Global Problem?, 1997 U. CHI. LEGAL F. 293, 302-03 (1997);
317. Stewart, supra note 146, at 160;
318. Stewart, supra note 17, at 19 (stating that "economic incentive systems," including emissions trading, have an advantage over command and control regulation in stimulating "continuing innovation").
319. Adam B. Jaffe, Richard G. Newell & Robert N. Stavins, Environmental Policy and Technological Change, 22 ENVTL. & RESOURCE ECON. 41, 51 (2002) (economic incentives stimulate innovation by paying firms to "clean up a bit more");
320. David A. Malueg, Emissions Credit Trading and the Incentive to Adopt New Pollution A batement Technology, 16 J. ENVTL. ECON. & MGMT. 52, 53-54 (1987).
321. Driesen, supra note 148, at 434-35 (explaining how the traditional focus on sellers biases theory).
322. Barreto & Kypreos, supra note 134, at 259 (finding that trading hinders the development and deployment of low carbon technology in permit buying regions).
323. Driesen, supra note 148, at 433-34 (presenting and defending this analytical framework);
324. Schwarze, supra note 108, at 56-57 (recognizing that a "fair comparison" between trading and traditional regulation requires the same standard).
325. See, e.g., Joel F. Bruneau, A Note on Permits, Standards, and Technological Innovation, 48 J. ENVTL. ECON. & MGMT. 1192 (2004);
326. W. A. Magat, Pollution Control and Technological Advance: A Dynamic Model of the Firm, 5 J. ENVTL. ECON. & MGMT. 1 (1978);
327. Malueg, supra note 185;
328. Juan-Pablo Montero, Market Structure and Environmental Innovation, 5 J. APPLIED ECON. 293 (2002) (trading, taxes, or traditional regulation can best encourage research and development when firms' products are strategic substitutes);
329. Juan-Pablo Montero, Permits, Standards, and Technological Innovation, 44 J. ENVTL. ECON. & MGMT. 23 (2002);
330. see also David M. Driesen, Does Emissions Trading Encourage Innovation?, 33 ENVTL. L. REP. 10094 (2003) (arguing that trading may encourage less innovation than a comparable performance standard, but suggesting that it may change the type of innovation);
331. David M. Driesen, The Economic Dynamics of Environmental Law: Cost-Benefit Analysis, Emissions Trading, and Priority Setting, 31 B.C. ENVTL. AFF. L. REV. 501, 519-20 (2004) (stating that trading may have an overall negative effect on innovation).
332. 2 Control, 27 L. & POL'Y 348, 370 (2005) (concluding that trading encouraged less innovation than command and control).
333. Choi, supra note 5, at 887 (stating that the acid rain program has encouraged reliance on low-sulfur coal and scrubber installation);
334. Swift, supra note 60, at 10332 (describing scrubbing and low-sulfur coals as the principle compliance means, but finding innovation in blending techniques and scrubber design);
335. Taylor et al., supra note 190, at 356 (discussing reliance on wet scrubbers and low-sulfur coals);
336. see David Popp, Pollution Control Innovations and the Clean Air Act of 1990, 22 J. POL'Y ANALYSIS & MGMT. 641 (2003) (finding more patenting of scrubber technology under command and control than under the acid rain trading program, but finding a shift in the type of innovation encouraged under trading).
337. DRIESEN, supra note 34, at 71.
338. Id.
339. See Driesen, supra note 52, at 336 (noting that spatial flexibility makes it easier "to deploy a well understood control method").
340. In reality, marginal control costs usually rise as a facility increases reductions. Thus, this example is oversimplified. But this simplification does not influence the results. Even if the low cost facility incurs higher costs for the reductions sold to Buyer than for the reductions made to merely achieve compliance, these extra reductions must still cost substantially less than the cost of routine compliance at Buyer's firm to make trading worthwhile. Indeed, the example in some ways understates the depth of the weakness of global trading in stimulating expensive innovation. One would expect trading to lower the marginal control costs of a large group of buyers, which might constitute about half of the participants in a trading program. And it would systematically lower the costs, and hence the price points innovators must meet, to the level of the cheapest reductions available anywhere within the universe of sources eligible to generate credits. In a global market, that universe is likely to be large and the opportunities for cheap routine reductions enormous.
341. Cf. Matschoss & Welsch, supra note 176, at 173 (referring to this hypothesis as the assumption of "induced factor-saving technological change").
342. See Paolo Bertoldi, Silvia Rezessy, Ole Langniss & Monique Voogt, White, Green & Brown Certificates: How to Make the Most of Them at 11 (2005), http://sunbird.jrc.it/energy efficiency/pdf/publications/ ECEEE%202005%20paper%207%20203%20final.pdf(stating that the ETS will probably do little to encourage renewable energy because "renewables may have higher marginal abatement costs" than other carbon mitigation options).
343. See DESSLER & PARSON, supra note 1, at 103 (pointing out that solar power is "already cost competitive in some niche applications").
344. See Fenhann CDM Pipeline, supra note 124 (buyers and investors favor projects requiring the least investment).
345. See Ellis & Kamel, supra note 126, at 13-15 (stating that renewable energy projects typically have relatively high abatement costs and industrial gas projects have low costs); Michaelowa & Butzengeiger, supra note 87, at 3 (predicting that the "EU emissions trading will not induce development of technologies that currently have high... costs," such as renewable energy, because of low allowance prices). See generally CAPOOR & AMBROSI, supra note 7, at 9 (discussing the lack of an internationally recognized price index and the tendency to keep prices and contract structures confidential).
346. See Ellis & Butzengeiger, supra note 126, at 13.
347. See White, supra note 20, at 65 (noting that firms make decisions to maximize profits). It is also possible that in some locations renewable energy proves extremely cost effective.
348. See Pearson, supra note 126, at 15 (suggesting that "some buyers" will pay a premium for renewables credits for public relations reasons).
349. The Gold Standard, http://www.cdmgoldstandard.org/ (webpage of "gold standard" certifying organization).
350. Douglas Kysar, Preferences for Processes: The Process/Product Distinction and the Regulation of Consumer Choice, 118 HARV. L. REV. 525, 529 (2004) (explaining that information about how goods are produced can influence consumer choice);
351. Kysar, supra note 8, at 2156 (identifying "infusing public policy elements into markets" as an important phenomenon that has attracted little attention);
352. see Iain MacGill, Hugh Outhred & Karel Nolles, Some Design Lessons from Market-Based Greenhouse Gas Regulation in the Restructured Australian Electricity Industry, 34 ENERGY POL'Y 11, 17 (2006) (demonstrating that markets have discounted credits for renewable energy produced by burning native forest waste in response to NGO opposition); The Gold Standard, supra note 204 (describing the NGO's strategy of persuading stakeholders that gold standard credits offer greater value and less risk than credits reflecting projects that NGOs have not specifically endorsed).
353. See, e.g., Pedro Linares, Francisco Javier Santos, Mariano Ventosa & Luis Lapiedra, Impacts of the European Emissions Trading Scheme Directive and Permit Assignment Methods on the Spanish Electricity Sector, 27 ENERGY J. 79, 88, 91 (2006) (forecasting switches to natural gas combined cycles but no other "new" technology, because "the permit price is not high enough").
354. Nicholas A. Ashford & George R. Heaton, Jr., Regulation and Technological Innovation in the Chemical Industry, 46 LAW & CONTEMP. PROBS. 109, 139-140 (1983);
355. Schwarze, supra note 108, at 57-58 (stating that demanding traditional regulation produces strong incentives for innovation);
356. see DRIESEN, supra note 34, at 52-53 (discussing cases where traditional regulation has encouraged innovation); OFFICE OF TECHNOLOGY ASSESSMENT, U.S. CONGRESS, GAUGING CONTROL TECHNOLOGY AND REGULATORY IMPACTS IN OCCUPATIONAL SAFETY AND HEALTH: AN APPRAISAL OF OSHA's ANALYTICAL APPROACH, 89-90 (1995);
357. Nicholas A. Ashford, Christine Ayers & Robert F. Stone, Using Regulation to Change the Market for Innovation, 9 HARV. ENVTL. L. REV. 419, 440-41 (1985);
358. Kurt Strasser, Cleaner Technology, Pollution Prevention and Environmental Regulation, 9 FORDHAM ENVTL. L. REV. 1, 28-32 (1997).
359. The failure of emissions trading to stimulate projects that increase energy efficiency stems from the peculiarities of the Kyoto trading design rather than a general failure of trading to encourage cost effectiveness. See Bertoldi et al., supra note 197, at 11 (pointing out that enduse energy efficiency provides "low-cost" carbon reduction.) The Kyoto parties' decision to allow trades with sources whose emissions remain uncapped threatens the program's integrity because it creates a potential to give up reductions from regulated sources in exchange for positive changes that would happen even without a trading program. See Sandra Greiner & Axel Michaelowa, Defining Investment Additionality for CDM Projects-Practical Approaches, 31 ENERGY POL'Y 1007, 1007 (2003) (linking the lack of targets for reductions in developing countries to potential problems with CDM's integrity). In order to avoid this danger, the Kyoto Protocol requires that credit only be granted for projects yielding " additional" emission reductions. Kyoto Protocol, supra note 2, art. 12(5)(c); Framework Convention on Climate Change: Conference of the Parties, October 19-November 10, 2001, Marrakesh Accords, Annex 17/CP.7 43. U.N. Doc FCCC/CP/2001/13/Add.1 (Jan. 21, 2002);
360. see KYOTO MECHANISMS, supra note 90, at 193 (explaining that certification of credits for energy efficiency projects that would have been used anyway would lead to increased emissions). Because many energy efficiency projects are economically attractive on their own, they have difficulty satisfying this criterion.
361. See KYOTO MECHANISMS, supra note 90, at 193 (using introduction of "improved energy efficiency technologies that would have become widely used" anyway as the example of an additionality problem);
362. K. Umamaheswaran & Axel Michaelowa, Additionality and Sustainable Development Issues Regarding CDMProjects in Energy Efficiency Sector, HWWA Discussion Paper 346, 2, http://www.hwwa.de (characterizing additionality analysis of energy efficiency projects as "cursory"). The Kyoto Protocol's language suggests a "project additionality test"-that the project produce real additional reductions-but the regime has included to some degree a "financial additionality test" that requires that the credit purchases are essential to making the project happen.
363. See Michael Dutschke & Axel Michaelowa, Development Assistance and CDM - How to Interpret Financial Additionality, ' 11 ENVT. & DEV. ECON. 235 (2006) (discussing an interpretive issue with regard to financial additionality's relationship to foreign aid);
364. Fenhann CDM Pipeline, supra note 124, at 22-23 (quoting an EU program elaborating additionality testing as acknowledging a general recognition that only projects that would not have taken place without the purchase of credits meet additionality criteria);
365. Umamaheswaran & Michaelowa, supra, at 22 (noting that the CDM Executive Board has required evidence that CDM revenue was considered at the design stage for "prompt start projects"). A design that only allowed trades with sources subject to caps might well encourage energy efficiency.
366. See Robert N. Stavins, Implications of the US Experience With Market-Based Environmental Strategies for Future Climate Policy, in EMISSIONS TRADING, supra note 55, at 66-67 (recognizing that programs allowing "an unregulated source" to generate credits require review lest credits be given for reductions "that would have taken place in any event").
367. Our entrepreneur may consider the value of receiving a longer stream of direct carbon benefits from the solar project than the HFC project would generate. She may sharply discount the value of future carbon reductions even though their value to future generations might be nearly as high as the early reductions. The parties to Kyoto have not yet agreed to targets beyond 2012, which lessens incentives to think about long-term streams of reductions. Even if she considers long-term benefits that she can realize profits from, there remains no reason for her to consider spillovers like the value of her technological contribution to other suppliers' future development of solar energy.
368. See DESSLER & PARSON, supra note 1, at 170-71 (explaining that emissions trading exploits "cheap opportunities" to deploy "presently available" technology, but it undermines the incentives to develop the new technologies that may reduce long-term costs);
369. PALMER & BURTRAW, supra note 113, at 59 (explaining that the most cost effective way to encourage renewable energy employs a carbon trading design that is more costly than a standard design);
370. Schwarze, supra note 108, at 53 (recognizing "a general tradeoff between the goal of stimulating new technology and the goal of dynamic efficiency").
371. Stavins, supra note 208, at 71-72 (stating that "little is known empirically about the impact of these instruments on technological change" and that "there is... no policy panacea").
372. Additional approaches to possible innovation exist. See DRIESEN, supra note 34, at 151-61, 183-201;
373. David M. Driesen, Sustainable Development and Air Quality: The Need to Replace Basic Technologies with Cleaner Alternatives, 32 ENVTL. L. REP. 10277, 10285-90 (2002) (discussing various alternatives).
374. See Richard B. Stewart, Regulation, Innovation, and Administrative Law: A Conceptual Framework, 69 CAL. L. REV. 1256, 1260-61 (1981) (concluding that innovation is needed just to keep environmental problems from getting worse as economic growth continues).
375. Choi, supra note 5, at 934 n.308 (calling renewable portfolio standards "[t]he most effective policy tool" for increasing renewable energy's market share).
376. See, e.g., Mandel, supra note 162, at 64-69 (proposing a "patent rewards system" for environmental technology).
377. See DRIESEN, supra note 34, at 151-161.
378. See id. at 151-54 (explaining that both emissions trading and pollution taxes depend upon government decisions to drive pollution reduction and suggesting mandatory payments to less polluting competitors as an alternative).
379. See id. at 154 (explaining that the Environmental Competition Statute relies on polluters' hopes of besting competitors and fears of losing out to them to motivate reductions).
380. EMISSIONS TRADING AND BUSINESS 46-49 (Ralf Antes, Bernd Hansjürgens & Peter Letmathe eds., 2006) (discussing the effects of auctioning allowances, providing free allowances to new entrants, and preserving allowances for owners of closed plants on innovation);
381. Jody Freeman & Daniel A. Farber, Modular Environmental Regulation, 54 DUKE L.J. 795, 836 (2005) (characterizing "careful attention to design" as "crucial");
382. see MacGill et al., supra note 205, at 23 (explaining that absent appropriate design, poor quality credits can crowd out high quality credits);
383. see, e.g., PALMER & BURTRAW, supra note 113, at 25 (advocating the allocation of carbon allowances based on output, which favors renewable energy providers with the opportunity to sell all of their allowances);
384. Atle Midttun & Kristian Gautesen, Feed in or Certificates, Competition or Complementarity? Combining a Static Efficiency and a Dynamic Innovation Perspective on the Greening of the Energy Industry, 35 ENERGY POL'Y 1419, 1420 (2007) (green certificate systems "with free competition between all renewable technologies" will not support "the broader technological development necessary to further subsequent generations of renewable technology").
385. See James MacKintosh, The Car Industry Needs Carbon Trading, FIN. TIMES, July 3, 2006, at 17 (suggesting that a broader trading scheme would allow car manufacturers to avoid manufacturing hybrid vehicles and vehicles using biofuels).
386. See CALIFORNIA ENVIRONMENTAL PROTECTION AGENCY AIR RESOURCES BOARD, STAFF REPORT: INITIAL STATEMENT OF REASONS FOR PROPOSED RULEMAKING, PUBLIC HEARING TO CONSIDER ADOPTION OF REGULATIONS TO CONTROL GREENHOUSE GAS EMISSIONS FROM MOTOR VEHICLES vii (2004) (prohibiting use of credits from non-vehicle measures or for measures outside of California to avoid diluting carbon reduction regulations' technology-forcing effect).
387. See Choi, supra note 5, at 937 (recommending a cap on credits from foreign countries to address "deterrence of long-term technological improvements");
388. Matschoss & Welsch, supra note 176, at 170 (noting that a number of writers have argued that placing limits on trades increases incentives for technological innovation).
389. DRIESEN, supra note 34, at 183-201 (explaining principles of regulatory design and making illustrative reform recommendations);
390. Michael Grubb, Carlo Carraro & John Schellnhuber, Technological Change for Atmospheric Stabilization: Introductory Overview to the Innovation Modeling Comparison Project, 2 7 ENERGY J.1, 14 (2006) (highlighting the need for clear signals through long-term targets and characterizing the policy implications of considering innovation as "far more subtle" than questions of choosing between trading and traditional regulation). The acid rain program sought to encourage renewable energy by setting aside allowances for renewable energy. 42 U.S.C. § 7651c(f)-(g) (2007). But this feature had little effect.
391. See Choi, supra note 5, at 891 n.86. We need more research about designing trading programs to encourage innovation. Cf. id. at 936-37 (opining that "[d]irect allocations of allowances to renewable energy sources would function as a much more powerful tool for accelerating the commercial development of renewable energy technologies").
392. Michael Grubb, Christian Azar & U. Martin Persson, Allowance Allocation in the European Emissions Trading Scheme: A Commentary, 5 CLIMATE POL'Y 127, 127 (2005) (describing the "allocation of allowances" as "the most... important step" for "any emissions trading system").
393. Id. (allowance allocation determines the total emissions reductions and the magnitude of incentives for change); see, e.g., Choi, supra note 5, at 902-03 (describing California's RECLAIM program as a "failure" because the South Coast Air Quality Management District set the cap too high).
394. See Grubb et al., supra note 224.
395. See id. at 131 -32 (finding the allocations in phase one inconsistent with a serious effort to meet Kyoto targets and unlikely to encourage innovation); Gaming Gases; Emissions Trading, THE ECONOMIST, June 10, 2006, at 69 (because of overallocation of allowances and other design features the EU Emissions Trading Scheme "failed to boost alternatives").
396. See PALMER & BURTRAW, supra note 113, at 31 (explaining that the stringency of a renewable portfolio standard affects the prospects of different classes of renewable energy).
397. DRIESEN, supra note 34, at 197 (explaining the link between stringency and innovation).
398. See, e.g., EMISSIONS TRADING, supra note 55, at 4 (describing "cap-and-trade systems" as representing "a transition to market-based instruments which rely totally on market forces to create the necessary ... incentives").
399. Thomas Sterner & Henrik Hammar, Designing Instruments for Climate Policy, in EMISSIONS TRADING, supra note 55, at 17, 18.
400. See DESSLER & PARSON, supra note 1, at 15 (explaining that many European countries wanted less flexibility to use foreign emissions reduction credits than the U.S., Russia, Japan, and Canada wanted). Cf. Michaelowa & Butzengeiger, supra note 87, at 2-3 (the EU opposed trading in the run-up to Kyoto but embraced it afterwards).
401. See, e.g., Envtl. Def. Fund v. EPA, 489 F.2d 1247 (D.C. Cir. 1973) (upholding a ban on DDT).
402. I am providing general thinking about the political economy of trading, not a comprehensive empirical analysis of the particulars of Kyoto's political economy. Emissions trading did prove essential to the Kyoto Protocol's entry into force, but not sufficient. It became necessary to grant extra allowances to Russia to obtain ratification, thereby potentially coupling trading with weaker limits. This suggests that once countries treat costs as critical, trading alone may not be sufficient to get them on board, but rather laxity may be necessary. David M. Driesen, Choosing Environmental Instruments in a Transnational Context, 27 ECOLOGY L.Q. 1, 47 (2000) (raising the possibility of relaxing stringency to buy assent to a regulatory regime).
403. See Michaelowa & Butzengeiger, supra note 87, at 1-2 (explaining that the EU supported "stringent absolute emissions targets for industrialized countries" and opposed international trading for a long time).
404. Dan M. Kahan, Paul Slovic, Donald Braman & John Ciastil, Fear of Democracy: A Cultural Evaluation of Sunstein on Risk, 119 HARV. L. REV. 1071, 1072 (2005) (book review) (finding that "cultural worldviews" influence risk perception). Professor Kahan and his coauthors explain that "egalitarians" tend to favor environmental regulation and that "individualists" tend to trust markets and react skeptically to environmental risks. Id. at 1083-84. Their empirical research confirms previous research finding that the egalitarians are more concerned about global warming and other environmental hazards than the individualists. Id. at 1086;
405. cf. Cass Sunstein, Misfearing: A Reply, 119 HARV. L. REV. 1110, 1111 (2005) (agreeing that cultural cognition influences risk perception, but arguing that it's "hardly undemocratic" to ignore the misperceptions).
406. Driesen, supra note 234, at 49 (pointing out that the availability of lower cost abatement options in foreign countries will only affect the stringency of limits for a trading program if the government considers those cost savings); cf. Deiner, supra note 71, at 2117 (explaining that states reducing greenhouse gas emissions report that doing so creates new jobs, develops new technologies, and lowers energy costs).
407. See Terry Barker, Haoran Pan, Jonathan Köhler, Rachel Warren & Sarah Winne, Avoiding Dangerous Climate Change by Inducing Technological Progress; Scenarios Using a Large-Scale Econometric Model, in AVOIDING DANGEROUS CLIMATE CHANGE supra note 134, at 362-64 (discussing the wide divergence of results in economic models assessing the costs of climate change abatement);
408. Kahan et al., supra note 236, at 1088 (explaining that cultural world views influence perceptions of both the costs and benefits of dangerous activities). Professor Kahan argues that differences among experts reflect their divergent world views. Id. at 1092-1094. He also argues that experts may "screen arguments and evidence" to protect their status and beliefs. Id. at 1094. This suggests that economists may neglect learning by doing in economic modeling because recognizing the importance of something difficult to quantify threatens their status, but others may create numbers because their world views favor doing something about global warming.
409. See James M. Buchanan & Gordon Tullock, Polluters 'Profits and Political Response: Direct Control Versus Taxes, 65 AM. ECON. REV. 139, 141-142 (explaining why polluters may prefer regulations to taxes);
410. Nathaniel O. Keohane, Richard R. Revesz & Robert N. Stavins, The Choice of Regulatory Instruments in Environmental Policy, 22 HARV. ENVTL. L. REV. 313, 348-51 (1998) (explaining that polluters must pay taxes on residual emissions, but need not pay for those emissions under trading).
411. See Michaelowa & Butzengeiger, supra note 87, at 5 (explaining how lobbying in the EU led to goals in phase one that provided little departure from "business-as-usual" levels of carbon emissions).
412. See Grubb et al., supra note 224, at 132-33 (describing industry lobbying's contribution to the EU's over allocation of phase one emissions allowances);
413. Michaelowa & Butzengeiger, supra note 87, at 3 (pointing out that German industry lobbied against the EU emissions trading directive and that the chemical and aluminum industries lobbied, successfully, for their exclusion from the scheme);
414. France Haggles over Banking Rules as Second NAP Set to Miss Deadline, POINT CARBON (June 15, 2006), available at http://www.pointcarbon.com/ articlel6056-868.html?articleID= 16056&categoryID= (mentioning a French industry's advocacy of a high phase two cap).
415. See, e.g., Choi, supra note 5, at 950 (attributing the U.S. failure to implement Kyoto to "an economic way of thinking," which stresses "short-term costs rather than long-term benefits").
416. See Driesen, supra note 234, at 47 (explaining that no economic reason exists for a polluter to agree to emissions trading, unless government is willing to impose a more costly alternative).
417. Driesen, supra note 52, at 293;
418. see Samuel P. Hays, The Future of Environmental Regulation, 15 J.L. & COM. 549, 565-66 (1996) (characterizing traditional standards as the most significant "market force" in environmental protection).
419. See Driesen, supra note 52, at 336.
420. See Ackerman & Stewart, supra note 52, at 1352-59 (linking trading to a system that provides for democratic goal setting);
421. Robert W. Hahn & Gordon L. Hester, Where Did All the Markets Go? An Analysis of EPA 's Emissions Trading Program, 6 YALE J. ON REG. 109, 111 (1989) (monitoring and enforcement issues play a critical role in trading program design).
422. See, e.g., Ruth Greenspan Bell, Choosing Environmental Policy Instruments in the Real World, in OECD GLOBAL FORUM ON SUSTAINABLE DEVELOPMENT: EMISSIONS TRADING 10 (2003) (arguing that emissions trading may not work well in countries lacking the capabilities to define and implement complex systems);
423. Driesen, supra note 10, at 22 (discussing the collapse of a New Jersey emissions trading program because of efforts to delegate monitoring to a private agency).
424. See, e.g., Haripriya Gundimeda, How Sustainable is the Sustainable Development Objective of CDM in Developing Countries Like India, 6 FOREST POL'Y & ECON. 329, 333 (2004) (explaining that project developers are likely to overlook micro level issues that determine whether afforestation and conservation projects for credit harm or help the poor).
425. Robert N. Stavins, Implications of the US Experience with Market-Based Environmental Strategies for Future Climate Change Policy, in EMISSIONS TRADING, supra note 55, at 66 (referring to government approval of individual trades as transaction costs);
426. David M. Driesen & Shubha Ghosh, The Functions of Transaction Costs: Rethinking Transaction Cost Minimization in a World of Friction, 47 ARIZONA L. REV. 61, 79-82 (2005) (reviewing transaction cost minimization's role in emissions trading).
427. See James E. Krier, Risk and Design, 19 J. LEGAL STUD. 781, 782 (1990) (explaining that externalities arise when A and B "mistransact" with respect to C, whose interest they do not take into account).
428. See Michael S. Barr, Credit Where it Counts: The Community Reinvestment Act and its Critics, 80 N.Y.U. L. REV. 513, 602 (2005) (arguing that transaction costs generated by public involvement in Community Reinvestment Act processes should be weighed against the benefits of "civic engagement");
429. Driesen & Ghosh, supra note 247, at 92-98 (discussing the tension between the impetus to reduce transaction costs to encourage trading and the need to preserve effective government oversight to protect environmental quality from poor quality trades);
430. accord Stavins, supra note 206, at 66 (the negative effects of transaction costs "should be balanced against any anticipated benefits due to required government approval").
431. See, e.g., AARON WILDAVSKY, SEARCHING FOR SAFETY 212 (1988);
432. John D. Graham & Jonathan Baert Wiener, Confronting Risk Tradeoffs, in RISK VERSUS RISK: TRADEOFFS IN PROTECTING HEALTH AND THE ENVIRONMENT 1 (John D. Graham & Jonathan Baert Wiener eds., 1995);
433. Randall Lutter & John F. Monall III, Health-Health Analysis: A New Way to Evaluate Health and Safety Regulation, 8 J. RISK & UNCERTAINTY 43 (1994); Cass Sunstein, HealthHealth Tradeoffs, 63 U. CHI. L. REV. 1533 (1996);
434. W. Kip Viscusi, Risk-Risk Analysis, 8 J. RISK & UNCERTAINTY 5 (1994).
435. See Kysar, supra note 172, at 258-59 (defining "risk-risk analysis" as focusing decision-makers on the secondary ancillary harms that come from regulating a chosen harm).
436. See Samuel J. Rascoff & Richard L. Revesz, The Biases of Risk Tradeoff Analysis: Towards Parity in Environmental andHealth-and-Safety Regulation, 69 U. CHI. L. REV. 1763, 1766 (2002) (faulting risk tradeoff analysis's neglect of "ancillary benefits").
437. See David M. Driesen, Trading and Its Limits, 14 PENN ST. ENVTL. L. REV. 169, 173 (2006) (leaving the choice of technologies to regulated parties leaves the government with "no timely means of evaluating risk/risk tradeoffs").
438. Driesen, supra note 234, at 49-50 (government must consider data of polluters' abatement costs if it wishes to consider cost in setting a cap for a tradable permit program).
439. Cf. Wiener, supra note 43, at 775 (suggesting that only "technology-based regulation" depends upon agency consideration of abatement costs).
440. See Kysar, supra note 172, at 268 (noting that analysts expected acid rain permits to cost $1,500 a ton, but that they have traded for as little as $66.05 a ton).
441. See Driesen, supra note 255, at 173 (pointing out that CBA is more likely to be wrong when a trading approach is used than when it is not used, because it is difficult to predict the magnitude of the trading program's cost savings).
442. See EMISSIONS TRADING, supra note 55, at 3 (stating that once government allocates allowances its "action is limited to supervising the market, monitoring adequately, and applying sanctions in the case of non-compliance").
443. See SEGGER & KHALFAN, supra note 45, at 4 (noting that sustainable development's "inclusiveness" helped it guide diverse local, national, and international communities).
444. See id. (explaining that sustainable development does not function as a "scientific blueprint" for decision-makers and that this has caused "difficulties" in recent years);
445. cf. White, supra note 20, at 27-39 (explaining sources of great indeterminacy in efficiency determinations).
446. See Richard B. Stewart, Economics, Environment, and the Limits of Legal Control, 9 HARV. ENVTL. L. REV. 1, 6 (1985).
447. See Richard B. Stewart, A New Generation of Environmental Regulation?, 29 CAP. U. L. REV. 21, 94 (2001) ("command systems limit... the quantity of residuals that each actormay generate").
448. See Swift, supra note 60, at 10336-37 (explaining that traditional regulations have accommodated different base technologies for power generation, instead of encouraging shifts to cleaner fuels and boiler designs).
449. POSNER, supra note 16, at 160 (referring to government's "well known" inability to pick "technological winners").
450. See generally Kysar, supra note 8, at 2147-48 (detailing a host of reasons to be skeptical of government's ability).
451. See generally KENNETH J. ARROW, SOCIAL CHOICE AND INDIVIDUAL VALUES (1963);
452. JAMES M. BUCHANAN & GORDON TULLOCK, THE CALCULUS OF CONSENT: LOGICAL FOUNDATIONS OF CONSTITUTIONAL DEMOCRACY (1962). Cf. JERRY L. MASHAW, GREED, CHAOS, AND GOVERNANCE: USING PUBLIC CHOICE TO IMPROVE PUBLIC LAW (1997);
453. ARMATY K. SEN, THEORY OF COLLECTIVE CHOICE (1970);
454. Daniel A. Farber & Philip E. Frickey, The Jurisprudence of Public Choice, 65 TEX. L. REV. 873 (1987);
455. Mark Kelman, On Democracy-Bashing: A Skeptical Look at the Theoretical and "Empirical " Practices of the Public Choice Movement, 74 VA. L. REV. (1988).
456. See, e.g., JIM VALLETTE & STEVE KRETZMANN, THE ENERGY TUG-OF-WAR: THE WINNERS AND LOSERS OF WORLD BANK FOSSIL FUEL FINANCE 2 (2004) (chiding the World Bank for funding projects benefiting "Northern fossil fuel corporations").
457. See Cass Sunstein, Irreversible and Catastrophic, 91 CORNELL L. REV. 841, 864 (2006) (stating that public resistance to paying now to reduce future risks fits standard claims about discounting).