By Tyler McNish
Tradable property rights-based carbon offsets are widely used as a policy tool for combating the greenhouse gas emissions that cause climate change. However, academics, non-governmental organizations, and market participants have criticized carbon offset mechanisms’ economic inefficiency and dubious environmental benefits. This Article traces these criticisms to the microeconomic structure of the offset market. Offsets were envisioned as a way to use self-regulating market forces to stimulate investment in emissions mitigation projects efficiently, but tradable property rights are inherently ill-suited to that task. Consequently, policymakers ended up designing a Rube Goldberg-esque scheme that is neither efficient nor self-regulating. The financial intermediation industry through which offsets are certified and traded consumes approximately thirty percent of all carbon offset funding, such that less than seventy cents out of each dollar invested in international greenhouse gas mitigation reaches its target. At the same time, the private sector-led system inappropriately cabins the authority of public sector regulators — the only market participants with an incentive to ensure the environmental quality of the assets exchanged. Systemic risk is also a concern: the offset mechanism’s substitution of abstract, tradable securities for simpler contract-based lending bears an uncanny resemblance to developments in the securitized mortgage lending industry prior to the 2008 crisis. Direct subsidies issued to emissions-reducing projects by a publicly administered fund could likely achieve better environmental outcomes at lower cost.
Cite as: Tyler McNish, Carbon Offsets are a Bridge Too Far in the Tradable Property Rights Revolution, 36 Harv. Envtl. L. Rev. 387 (2012).
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By Philip Womble & Martin Doyle
With the exception of greenhouse gas trading programs, environmental markets are prisoners of their own geography — and with good reason. Climate change is a global phenomenon, and so carbon markets can be geographically all-inclusive — a ton of carbon dioxide emitted in Beijing has the same effect as a ton of carbon dioxide emitted in New York. Other environmental markets are more nuanced. Markets for water quality, biodiversity, endangered species, fisheries, air quality, and aquatic resources, to name a few, must recognize that the commodities they trade exist at particular geographic scales, and set appropriate spatial limits on the redistribution of environmental quality. The size of geographic trading areas has significant implications for the economic viability of markets and the ecological quality of their offsets.
U.S. wetland and stream mitigation markets, which emerged in the 1980s, provide perhaps the most established empirical example of how environmental markets function. This Article presents the first systematic assessment of the federal and state laws, regulations, guidance, and operating practices that shape the geographic size of U.S. wetland and stream markets. This Article first addresses the history of these geographic restrictions under the Clean Water Act, the importance of spatial context for ecosystem functions and services, and the economic-ecological tradeoffs implicated by geographic trading limits. Then, based on the results of the assessment, this Article argues that regulators should increase their transparency and consistency in setting geographic trading limits. It also presents a framework for using more specific geographic limits for different types of wetland and stream offsets to enhance a market’s ecological and economic stability. Lessons from setting geographic limits for wetland and stream markets can be applied to other, nascent environmental markets.
Cite as: Philip Womble & Martin Doyle, The Geography of Trading Ecosystem Services: A Case Study of Wetland and Stream Compensatory Mitigation Markets, 36 Harv. Envtl. L. Rev. 229 (2012).
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By David M. Driesen
This Article compares the relative merits of feasibility and cost-benefit based regulation, responding to a recent article by Jonathan Masur and Eric Posner on this topic. Normatively, it shows that the lack of correlation between non-subsistence consumption and welfare supports the argument that regulation should be strict, unless widespread plant shutdowns, which would seriously impact well-being, are involved. It demonstrates that a host of practical defects Masur and Posner find in feasibility analysis would infect cost-benefit analysis as well in light of the importance of cost’s distribution, the feasibility principle respresents a reasonable effort to politically resolve difficult normative issues.
Cite as: David M. Driesen, Two Cheers for Feasible Regulation: A Modest Response to Masur and Posner, 35 Harv. Envtl. L. Rev. 313 (2011).
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