The Institutional Economics of Market-Based Climate Policy, Volume 7

1st Edition

Authors: E. Woerdman
Print ISBN: 9780444545572
eBook ISBN: 9780080473062
Imprint: Elsevier Science
Published Date: 10th August 2004
Page Count: 340
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Institutional Access


The objective of this book is to analyze the institutional barriers to implementing market-based climate policy, as well as to provide some opportunities to overcome them. The approach is that of institutional economics, with special emphasis on political transaction costs and path dependence.

Instead of rejecting the neoclassical approach, this book uses it where fruitful and shows when and why it is necessary to employ a new or neo-institutionalist approach. The result is that equity is considered next to efficiency, that the evolution and possible lock-in of both formal and informal climate institutions are studied, and that attention is paid to the politics and law of economic instruments for climate policy, including some new empirical analyses.

The research topics of this book include the set-up costs of a permit trading system, the risk that credit trading becomes locked-in, the potential legal problem of grandfathering in terms of actional subsidies under WTO law or state aid under EC law, and the changing attitudes of various European officials towards restricting the use of the Kyoto Mechanisms.

Table of Contents


  1. Introduction. 1.1 Introduction. 1.2 Climate change, the Kyoto protocol and beyond. 1.3 Market-based climate policy, public goods and property rights. 1.4 The Kyoto mechanisms, institutional features and competitive advantages. 1.5 The emerging international greenhouse gas market. 1.6 Objective and approach of the book. 1.7 Overview of the book.

Part I. Institutional Economics.

  1. Design and implementation of market-based climate policy. 2.1 Introduction. 2.2 Tradeable emission rights and the private sector. 2.2.1 Domestic permit trading design. 2.2.2 Downstream permit trading with upstream monitoring. 2.3 Project-based emissions trading and the private sector. 2.4 Economic versus political hierarchy in market-based climate policy? 2.4.1 The theoretical superiority of permit trading in economics. 2.4.2 The problematic acceptability of permit trading in politics. 2.5 Some drawbacks of the existing literature. 2.6 Conclusion.
  2. Path dependence and lock-in of market-based climate policy. 3.1 Introduction. 3.2 Definitions of institutional path dependence and lock-in. 3.3 Conditions for an institutional lock-in. 3.3.1 The superior alternative, imperfect markets and incomplete information. 3.3.2 Self-reinforcement, positive feedbacks and political transaction costs. 3.3.3 Probability, inevitability and remediableness. 3.4 Conditions for an institutional break-out. 3.4.1 Information, perceptions and experiments. 3.4.2 Problem-solving, crises and learning. 3.4.3 Switching costs, legal compatibilities and societal change. 3.5 The superiority of the superior alternative contested. 3.6 Novelties of an institutional path dependence approach. 3.7 A path-dependent climate policy? 3.8 Conclusion.

Part II. New Institutional Economics.

  1. Environmental effectiveness of market-based climate policy. 4.1 Introductio


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© Elsevier Science 2005
Elsevier Science
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About the Author

E. Woerdman

Affiliations and Expertise

University of Groningen, Department of Law and Economics, The Netherlands


"...Woerdman presents a careful and wide-ranging analysis of the institutional challenges involoved in implementing the flexibility mechanisms associated with the Kyoto Protocol and the emerging international climate change regime...On the whole, this book provides insight into the general structure of institutional economics and it's applications to environmental policy analysis." -Richard B. Howarth, Environmental Studies Program, Dartmouth College, in ECOLOGICAL ECONOMICS, 2005 @from: P. Lehmann @qu: this is an accomplished book that will be of interest to researchers in the field of climate policy and those with a more general interest in applying institutional economics to analyse environmental policies. @source: European Environment, 2005